Anticipation of a potential rate cut is driving volatility in both traditional and crypto markets.
Federal Reserve Prepares for Rate Cuts Amid Cooling Inflation
US Federal Reserve officials will meet on September 18th and are likely to announce the first interest rate cut in over four years. The central debate among policymakers is whether to move by 25 or 50 basis points. This decision comes as inflation eases towards the Fed’s 2% target and the labor market continues to show signs of cooling.
Since 2022, the Federal Reserve has raised rates to tackle inflation caused by post-pandemic disruptions and geopolitical tensions. Now, with inflation easing and steady economic growth, the Federal Reserve is expected to ease monetary policy for the first time since the COVID-19 crisis.
Impact of Fed Rate Cuts on Crypto Markets
One of the key discussions in crypto market news revolves around how the anticipated rate cut will affect cryptocurrency prices. Historically, when central banks lower rates, riskier assets like cryptocurrencies tend to benefit due to increased liquidity in the market. If the Fed opts for a more aggressive 50 basis point cut, this could trigger a rally in Bitcoin and other digital assets as investors seek higher returns in riskier assets.
On Friday, Bitcoin’s price surged to almost $60,000, representing a 2.5% increase in anticipation of the Fed’s decision. This marked a turning point for BTC, which had experienced a slow start to September. The market is closely watching whether this momentum will continue, particularly if the Fed opts for a larger rate cut.
How Rate Cuts Affect the Crypto Market
When interest rates are low, the cost of borrowing decreases, and traditional investments like bonds offer lower yields. This makes alternative assets like cryptocurrency more appealing to investors. A 50 basis point rate cut by the Fed could drive increased investment in crypto as investors seek higher returns in a more favorable environment for riskier assets.
Additionally, a cut in rates may reduce the US dollar’s strength, further boosting crypto prices. Analysts predict that if the Fed moves aggressively, we could see Bitcoin break through its September highs and even test new resistance levels.
The Decision: 25 or 50 Basis Points?
A 25 basis point rate cut signals caution, while a 50 basis point cut could boost investor sentiment and benefit crypto markets short-term, but may raise inflation concerns and increase long-term volatility.
Disclaimer:
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