The cryptocurrency market is feeling the pressure as a possible 50 basis point interest rate cut by the Federal Reserve looms.
The cryptocurrency market is reacting to the possibility of a larger-than-expected interest rate cut by the Federal Reserve.
Posted on September 16, 2024 at 2:26pm EST.
Bitcoin and other cryptocurrencies have been hit as the market prepares for a larger-than-expected interest rate cut from the Federal Reserve. Bitcoin has fallen 3% in the past 24 hours and is currently trading at $58,000, while Ethereum has fallen 3.5% to $2,300. The drop comes as the likelihood of the Fed cutting interest rates by 50 basis points this Wednesday has skyrocketed to 61%, up from 14% last Wednesday, according to CME. dataMeanwhile, the chances of a small rate cut of 25 basis points are at 39%.
The sudden increase in the likelihood of more aggressive interest rate cuts has rattled the cryptocurrency market, raising concerns that the economy may be in worse shape than previously thought. The possibility of a 50 basis point cut, the first significant rate cut since 2020, has led to uncertainty and selling pressure among investors.
read more: What do lower inflation and lower interest rates mean for cryptocurrencies and Bitcoin prices?
Three Democratic senators, including Elizabeth Warren (D-Massachusetts), have added to the tension. prompt The senators called for the Fed to cut interest rates by 75 basis points, warning that a more cautious approach could push the economy closer to a recession. In a letter to Fed Chairman Jerome Powell on Monday, the senators stressed that with inflation trending downward and signs of a cooling labor market, the Fed should act decisively to mitigate potential risks. They argued that a frontloaded rate cut is essential to avoid a potential economic crisis, writing: “Because employment data is slow to change, the Fed should frontload rate cuts to avoid sliding into a potential crisis.”
Marc Andreessen, general partner at venture capital firm a16z, noted sarcastically: Posts Regarding X: “I strongly support Senator Warren's call for an immediate 75 basis point cut in interest rates and a corresponding surge in stock prices.”
Market experts argue that a 50 basis point rate cut is the Fed's best bet. Former New York Federal Reserve President Bill Dudley said: Claimed In a Bloomberg column on Monday, Dudley argued that a 50 basis point cut would make the most sense because it would help the Fed align its interest rate policy with its economic forecasts and avoid sending conflicting signals to the market. Dudley believes that, given the current economic situation, a larger cut is needed to correct the misalignment between Fed policy and the neutral rate.
Greg Ip, chief economics commentator for the Wall Street Journal support Ip plans to cut rates by 50 basis points, but for a slightly different reason. With inflation already subsiding and the labor market softening, he says the Fed should act decisively rather than waiting for more evidence of a recession. Delaying action, he says, would be risky and could lead to the Fed being forced to make deeper cuts later, when it would be too late to be effective.
A final decision is expected on Wednesday, and the financial world is watching closely. Whether the Fed chooses to cut rates by 25 or 50 basis points, the decision is expected to have a significant impact on the cryptocurrency market and could signal how close the U.S. economy is to a recession.
read more: Why we should wait a little longer for the crypto bull market
