It’s happening at last.
Federal Reserve Chair Jerome Powell gave strong hints on Friday that the US central bank will soon be cutting federal interest rates.
“The time has come for policy to adjust,” Powell said at the Kansas City Fed’s Jackson Hole Economic Symposium, in Wyoming.
“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, evolving outlook, and the balance of risks,” Powell added.
That’s good news for Bitcoin and the rest of the crypto ecosystem — which tend to behave like risk-on assets and are particularly susceptible to accommodative economic environments.
According to FedWatch data, the market forecasts a 65% chance the US central bank will cut rates by 0.25% in September, and a 35% chance it will cut rates by 0.5%.
“If not 0.5% in September, at least 0.75% by year end,” Quinn Thompson, founder of crypto hedge fund Lekker Capital, posted on X following Powell’s speech.
“The biggest takeaway for me was that it was certainly not a ‘one and done’ type of speech,” Thompson added. “That was a strong confidence in [multiple] rate cuts.”
The Federal Reserve began its course of interest rate increases from zero in March 2022 to combat raging inflation. By July 2023, rates had been hiked to between 5.25% to 5.50%, marking the fastest and largest rate hike cycle in US history.
High interest rates incentivise investors to buy Treasury bonds to acquire solid risk-free yields. When interest rates go lower, however, investors tend to pursue returns through riskier vehicles — like stocks and crypto.
Lower interest rates also make it much easier for investors to borrow money, which further incentivises spending and juices up the economy.
The expected interest rate cuts — combined with a weaker dollar — will likely fuel the next crypto rally, David Brickell, head of international distribution at FRNT Financial, and former forex trader Chris Mill, wrote this week in their newsletter, “Connecting the Dots”.
“Bullish evolution of the macro has prepared the ground for Bitcoin’s next leg to new record highs,” they said.
Tom Carreras is a markets correspondent at DL News. Got a tip about Bitcoin and the Federal Reserve? Reach out at tcarreras@dlnews.com
