The First Interest Rate Cut from the Fed in 4 Years is Expected
For the first time since the start of Covid-19, the Fed is preparing to cut interest rates. At the meeting scheduled for 9:00 PM tonight, it is almost certain that the current interest rate range of 5.25-5.50% will be reduced, though uncertainty remains about the scale of the cut. As it stands, market pricing in the money markets suggests a 65% probability that the Fed will cut rates by 50 basis points. The policy statement to be released tonight, along with comments from Fed Chair Jerome Powell, are expected to play a critical role in determining the direction of the markets.
The potential interest rate cut from the Fed could also stir the Bitcoin market for the following reasons:
- Decline in the Value of the Dollar
- Increased Investor Interest
- Inflation Expectations
- Rising Risk Appetite
An interest rate cut typically leads to a weakening of the dollar’s value. In such cases, investors may turn to alternative assets as a means of preserving value. Bitcoin, with its limited supply, is often seen as a hedge against inflation. As the dollar loses value following rate cuts, investor interest in Bitcoin could increase.
Increased Investor Interest:
Lower interest rates reduce the returns on traditional investments like bonds and savings accounts, prompting investors to seek higher returns. During such periods, Bitcoin, known for its high volatility and potential for gains, often attracts more attention as investors look for riskier assets with greater reward potential.
While interest rate cuts are intended to stimulate economic growth, they can also raise concerns about inflation. Bitcoin’s fixed supply and decentralized nature make it an attractive option during periods of rising inflation. As inflation expectations grow, investors may turn to Bitcoin as a hedge against inflation, increasing demand for the cryptocurrency.
Increased Risk Appetite:
Interest rate cuts are aimed at boosting economic activity and typically lead to a higher risk appetite among investors. When there is abundant liquidity in the market, investors tend to shift towards riskier assets. Bitcoin, being a highly volatile asset, can become more attractive during these periods as investors seek greater potential returns.
“The investment information and comments provided in this text do not constitute investment advice.”
Research Specialist at EgeMoney
My areas of expertise include fundamental and technical analysis, portfolio management, risk analysis, and market research. Adapting to rapidly changing market conditions and producing reports are among my top priorities. Through my research on the EgeMoney platform, I aim to shape your financial future and add value to your decision-making processes.
