Is the anticipated reduction in Federal Reserve interest rates already accounted for by Bitcoin traders?
Federal Reserve Expected to Cut Interest Rates, Boosting Crypto Markets
The Federal Reserve is set to announce its decision on interest rates this Wednesday, with expectations high for a cut. According to analysts, the Fed could potentially opt for a 50 basis points cut rather than the expected 25 basis points.
The possibility of a larger-than-anticipated cut has sent crypto markets surging. Bitcoin, the leading digital currency, has risen nearly 5% over the past seven days, reaching a price of $116,559 - its highest level in a month. Other major digital assets such as Ethereum, XRP, and Solana have also seen gains, with Ethereum and XRP up 4.8% and 3% respectively, while Solana has climbed 10%.
The surge in crypto prices is partly due to the belief that a rate cut could boost the economy, leading to increased investment in riskier assets like cryptocurrencies. Research analyst Carlos Guzman at market maker GSR believes that if the Fed cuts interest rates by a greater-than-expected .50%, Bitcoin and other crypto prices could jump even further.
However, not all analysts share this optimism. Juan Leon, Bitwise's senior investment strategist, believes the rate cut has already been digested by the markets. Some analysts don't expect Bitcoin to rise further on the interest rate cut announcement.
The Fed's decisions on interest rates could potentially surprise markets. The central bank has kept interest rates unchanged in a range between 4.25% and 4.50% for five consecutive meetings since December 2018. Recent jobs reports have suggested that the economy is sagging, boosting prospects of a rate cut. The odds of a quarter-point stock market reduction currently stand at 96%, according to the CME's FedWatch tool.
President Donald Trump has been campaigning for a rate cut, and his attempts to fire Federal Reserve Board of Governors member Lisa Cook have raised concerns about the Fed's independence. However, a federal appeals court has blocked Trump's order to fire Cook.
The name of the Federal Reserve chairman discussed in connection with the possible interest rate cut on Thursday is Jerome Powell. After the decision, traders will pay close attention to Powell's comments for clues about the Fed's future rate policy. The Fed has expressed concerns about inflation, which remains above its 2% annual target. The Fed's updates coming out of the FOMC meeting could still move markets depending on what they signal for rate policy later in the year.
Meanwhile, gold, a traditional safe haven asset, has risen to a record high above $3,730 and is up more than 10% over the past month. Nearly nine in 10 consumers expect the Bitcoin price to remain above $105,000 throughout September.
Despite the recent surge, Bitcoin remains about 7% off its all-time high of $124,128 set in August. Traders will be watching closely to see if the expected rate cut will push Bitcoin and other cryptocurrencies closer to their all-time highs.
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