As a seasoned crypto investor with a decade of market insights under my belt, I find myself intrigued by the Federal Reserve’s recent 50 bps interest rate cut. Having weathered multiple economic cycles, I can’t help but recall the old adage: “The more things change, the more they stay the same.
The United States Federal Reserve chose to lower interest rates by half a percentage point (0.5%) after their FOMC meeting on September 18th. This significant reduction in the Fed’s interest rate is noteworthy as it marks the third occasion in recent times that the Central Bank has initiated a reduction in rates with such a large cut. However, Federal Reserve Chairman Jerome Powell clarified the reasons behind this decision in his subsequent speech.
Why The Federal Reserve Cut Interest Rates By 50 Bps
According to Jerome Powell, the Federal Reserve asserts that the American economy is generally robust and thriving, leading them to reduce interest rates by 50 basis points. Until this point, the Fed had been reluctant to initiate a cycle of rate cuts because inflation was still slightly below their desired target level of 2%.
Nonetheless, Powell expressed optimism that inflation will fall to 2%, in spite of this action. The latest employment figures serve as additional inflation data, causing some apprehension, yet the Fed affirmed that the job market remains robust.
In response to questions regarding an increase in job losses, Jerome Powell stated that they haven’t observed any surge in unemployment claims or layoffs. Furthermore, he mentioned that they aren’t receiving any indications from businesses about upcoming layoffs, implying that the number of unemployment claims might have been overestimated.
Despite the Fed Chair emphasizing their approach of making decisions “meeting by meeting,” his address suggests a strong belief that they can control inflation without triggering a recession in the U.S. economy.
Economist Peter Schiff, well-known in his field, cautioned that the Federal Reserve’s decision to lower interest rates might push the U.S. economy towards a recession and potentially increase inflation rates. Yet, despite these concerns, the market appears unfazed, responding favorably to the Fed’s more lenient policy stance.
As a researcher, I’ve just received news from the Federal Reserve indicating that they expect to implement two additional 25-basis-point interest rate reductions this year. Furthermore, their projections suggest a decrease of 100 basis points in 2025 and another 50 basis points in 2026.
A Bullish Perspective On The Fed’s Decision
In a contrast to Schiff, economist Alex Krüger expressed an optimistic view on the Federal Reserve’s 50 bps interest rate reduction. He argued that the Fed’s indication of more cuts to come this year demonstrates their proactive approach rather than being reactive. Krüger is confident about the strength of the US economy and emphasized that this is significant for risk-oriented assets such as Bitcoin.
In simpler terms, when the Federal Reserve starts easing monetary policy without an ongoing economic recession, these particular stocks tend to increase by about 10% over a six-month period. However, when the Fed loosens policy during a downturn, these stocks drop by around 12%. Given that the U.S. economy is not currently in a recession, these equities and Bitcoin are expected to perform favorably over the next few months.
Certainly, both stock and cryptocurrency markets showed optimism after the Federal Reserve’s choice to lower interest rates by 0.5%. Bitcoin surged beyond its previous levels, while other digital currencies also saw an increase following this major decision. However, Krüger pointed out that Bitcoin’s trajectory remains “highly influenced” by the outcome of the upcoming US presidential elections.
He also advised market participants to max long alts early on Election Night if Trump is coming ahead in the counts. He added that this is what he plans to do.
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2024-09-19 10:50