Cryptocurrency markets are bracing for more volatility in the financial sector as the possibility that the US Federal Reserve will cut interest rates soon begins to fade. Minutes of the meeting released Wednesday showed the Fed remains cautious about its approach to cutting interest rates. The minutes of the meeting also confirmed the fact that interest rates will be maintained for a long time, as the country's economic indicators indicated.
Fed remains wary of rate cut trajectory
Minutes from the Fed's most recent meeting showed officials saying they were cautiously optimistic about inflation and were in no hurry to cut interest rates. The decision was announced after a meeting in which officials chose to maintain the current level of the benchmark overnight borrowing rate and that no rate cuts would occur until the Federal Open Market Committee (FOMC), which sets interest rates, concludes. This occurred after amending the statement. I am even more confident that inflation is coming down.”
Fed stance dampens optimism for March meeting
The Fed's decision to hold off on cutting interest rates has removed any optimism from its upcoming meetings. According to the CME FedWatch tool, the market has priced in a 93.5% chance that the Fed will not cut rates at its next meeting in March. This was a blow across the board, as expectations for a rate cut as early as March had increased significantly since December last year. But the March Fed meeting will be crucial in clarifying how the Fed views the economy at that time.
But on the bright side, the minutes also showed that Fed policy has proven to be an overall success in overall economic management. In an interview with Yahoo Finance, Gabriela Santos, global market strategist at JPMorgan Asset Management, further asserted that a rate cut could happen in June. “We think [the Fed will] Wait until June to catch more trends,” he says.
Also read: Will cryptocurrencies be blocked in a bull run as Fed rate cut delay looms?
Cryptocurrency market prepares for impact while digesting Fed stance
Historically, the Federal Reserve's interest rate decisions have been an important source of information for investors when valuing assets. Lower interest rates often reduce the value of government bonds, making assets like cryptocurrencies more attractive. The crypto market is currently bracing for turmoil as investors may continue to use traditional assets for some time following the Federal Reserve's decision to postpone interest rate cuts.
But on the plus side, a strong economy is also maintaining investor demand. Countries with strong economies have stable purchasing power and tend to seek riskier assets. In such a scenario, the crypto market will likely maintain its upward pace regardless of the Fed's interest rate decisions.
