As a seasoned analyst with over two decades of experience in global financial markets, I have witnessed countless times how monetary policy decisions can significantly impact asset prices. The upcoming FOMC meeting is no exception, and its potential implications for Bitcoin and other digital assets are particularly intriguing given the current economic climate.
People closely watching financial markets are eagerly anticipating the upcoming Federal Open Market Committee (FOMC) meeting, as it’s believed to significantly impact the near-future trends of Bitcoin and other digital currencies. The attention primarily focuses on the possibility of a reduction in interest rates, which has been a topic of discussion among traders and investors for quite some time.
It’s not clear yet by how much the Federal Open Market Committee (FOMC) will reduce interest rates, but there is a general expectation that they might choose between a smaller 0.25% reduction or a larger 0.50% cut. A well-known economist suggests that the FOMC’s decision could trigger a “sell-the-news” reaction in risky assets such as Bitcoin, meaning a temporary decline in value, or potentially boost them further.
Economist Predicts Massive ‘Sell The News’ Event
In a recent chat with The Block, Steve Hanke, an economist at Johns Hopkins University, voiced his thoughts about how a predicted interest rate reduction by the U.S. Federal Reserve might affect the cryptocurrency market. Hanke suggests that if the anticipated 25-basis-point rate cut occurs as many investors expect, it could lead to a ‘sell-the-news’ scenario within the broader crypto industry.
He made clear that the market has already accounted for the potential decrease and incorporated it into various investment sectors’ price movements. Interestingly, when the reduction is formally declared, the market response might be relatively modest, possibly leading to a cascade of selling in the cryptocurrency market.
From my perspective as an analyst, unlike the anticipated 25-basis-point decrease, Hanke noted that a 50-basis-point reduction by the Federal Reserve has not yet been fully factored into the market. This suggests that such a 50-basis-point rate cut by the Fed might unexpectedly provide a boost to the market.
What To Expect In Light Of The Upcoming FOMC Meeting
U.S. inflation is showing signs of slowing, as indicated by Federal Reserve Chair Jerome Powell stating last month that “it’s time” for interest rate reductions. Currently, the interest rates are within the 5.25%-5.50% range, which is their highest level in 23 years. In terms of the Federal Open Market Committee (FOMC), a rate point refers to alterations made to the federal funds rate. The Federal Reserve adjusts interest rates mainly to promote economic growth and manage inflation.
Lowering the Federal Reserve’s interest rates might theoretically create an attractive setting for cryptocurrencies. When rates are reduced, conventional savings and bond investments yield less return, causing cautious investors to consider investing in cryptocurrencies instead.
At this moment, foreseeing the market response to an interest rate reduction can be tricky due to a few reasons. One significant factor is that Bitcoin’s rise earlier in the year was partially influenced by anticipation of a rate cut. This uncertainty raises questions about whether or not the potential impact of the rate cut has already been factored into current market prices.
At the time of writing, Bitcoin is trading at around $60,000, up by 3.5% in 24 hours.
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2024-09-15 06:11