The Federal Reserve’s first rate cut of 2025 jolted global markets, weakening the US dollar to its lowest level since February 2022, pushing Bitcoin above $118,000, and sending gold lower after touching fresh record highs. The quarter-point move was historic: it was the first time in more than three decades that the Fed eased policy while core PCE inflation remained above 2.9%. The shift underscores the central bank’s pivot toward protecting the labour market, fuelling debate about whether the US is edging closer to stagflation.

Key takeaways

• First Fed cut in over 30 years with inflation above 2.9%.
  
• The dollar fell to its weakest level since February 2022.
  
• Bitcoin climbed past $118,000 on ETF inflows and institutional demand.
  
• Gold retreated 1% from record highs but remains up 39% year-to-date.
  
• Fed policymakers are deeply split: nine see two more cuts this year, six see none.
  
• Inflation forecast revised higher for 2026; unemployment projected at 4.3–4.5%.
  
• Powell framed the decision as a “risk management” move, signalling caution.
  

Dollar slides to multi-year lows

The dollar index tumbled after the Fed’s decision, reflecting expectations that looser monetary policy will erode yield advantages and accelerate capital flows into alternative assets. The decline marked the dollar’s weakest level in more than three years. Analysts warn that the drop may reinforce inflationary pressures by making imports more expensive, compounding stagflation concerns.

Bitcoin crosses $118,000

Bitcoin edged higher on the announcement, briefly surpassing $118,000. The move was underpinned by continued ETF inflows and institutional demand, highlighting crypto’s resilience as investors adjust to lower borrowing costs. Traders remain divided: some argue the rally was already priced in, while others see room for a push toward $120,000 if supportive catalysts such as stronger liquidity or continued dollar weakness align.

Gold eases after record highs

Gold prices slipped by nearly 1% following the cut, reversing from record levels earlier in the session. The decline was driven by profit-taking after Powell signalled that future rate cuts would be decided “meeting by meeting.” 

Still, analysts stress the longer-term uptrend remains intact, with central bank purchases and diversification away from the dollar providing strong support. Unless gold breaks below $3,550, the bullish trajectory toward $3,700 and beyond remains in place. Year-to-date, bullion is still up almost 39%.

Fed divisions widen uncertainty

The Fed’s updated dot-plot revealed the sharpest internal split in years. Nine officials projected two more rate cuts in 2025, while six saw no further cuts. With only two policy meetings left this year, uncertainty around the path forward has increased. 

Notably, Stephen Miran, a Trump-era appointee, dissented and pushed for a larger 50 bps cut, reflecting disagreement about how aggressively the Fed should act.

Stagflation risks come into focus

By cutting rates with inflation above target, the Fed risks fuelling stagflation - weak growth, persistent inflation, and rising unemployment. Officials revised their inflation forecast for 2026 upward to 2.6% (from 2.4%) and now see unemployment rising to 4.3–4.5%. The shift signals that the Fed is prioritising jobs over its inflation target, setting a precedent that could erode credibility if inflation proves sticky.

Gold technical outlook

At the time of writing, gold is retreating from record levels but still showing underlying bullish momentum. On Deriv MT5 charts, buyers could breach resistance at $3,700 if momentum resumes. Key support sits at $3,630, followed by deeper levels at $3,325 and $3,280.

Bitcoin’s technical picture shows bullish pressure but signs of consolidation. On Deriv MT5, resistance is visible at $123,000, while downside support sits at $114,700 and $107,500. 

Market action suggests a tug-of-war between bulls and bears, with liquidity expectations favouring the upside over time.

Investment implications after the rate cut

The Fed’s decision reshaped markets in a single session. The dollar weakened to multi-year lows, Bitcoin extended gains above $118,000, and gold consolidated after a record run. In the short term, crypto could benefit further from liquidity expectations, while gold remains anchored by safe-haven flows despite profit-taking. For FX traders, the risk of additional dollar weakness looms if more cuts follow. With policymakers deeply divided and only two meetings left in 2025, cross-asset volatility is likely to remain high. Investors face the challenge of balancing near-term liquidity rallies with the longer-term risks of stagflation.

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