This morning, the US Federal Reserve (Fed) ended its FOMC meeting, and as expected by the market, the interest rate was frozen for the eighth time at 5.25%-5.5%. However, Chairman Jerome Powell sent a dovish signal at the press conference after the meeting, suggesting that a rate cut in September is imminent. This news immediately made the financial market boil, US stocks rose across the board, the four major indexes hit new highs, and the cryptocurrency market was also ready to move.
Powell said at the press conference that they are confident that inflation is continuing to move toward 2%. Although the meeting has not yet made any decisions on future actions, if economic data show that inflation is slowing, the rate cut may be implemented as early as September. However, he still has some reservations, pointing out that the following three conditions need to be met continuously: inflation falls as expected; economic growth remains at a reasonable strength; and the labor market remains in its current state.
However, market investors currently predict that the probability of the Fed cutting interest rates in September has reached 100%: the probability of a one-point rate cut is 86.5%, and the probability of a two-point rate cut is 13.5%. But Powell seems to have ruled out the possibility of the Fed cutting interest rates by 50 basis points at a time. He said: I don't want to specify what actions we are going to take, but this is not something we are considering now.
Andrew Hollenhorst, chief economist of Citigroup in the United States, pointed out that as the economy has weakened this year, recent data supports signs of slowing inflation, core PCE inflation data has slowed down, and housing inflation has also declined, which should give Fed officials confidence to start cutting interest rates. In addition, rising unemployment may force the Fed to take quick action to cut interest rates, and rising unemployment may increase the urgency of cutting interest rates in the coming months.
In this regard, Citi analysts predict that the Federal Reserve will cut interest rates for the first time starting in September this year, cutting interest rates by 25 basis points, and will cut interest rates by 75 basis points in 2024, and will continue to cut interest rates by 25 basis points at each subsequent meeting until the terminal federal funds rate target of 3.25-3.50% is achieved in July 2025, and maintain this level for the rest of 2025.
Previously, when Powell released a signal of interest rate cuts, the real-time market value of major cryptocurrencies such as Bitcoin rose. This is because interest rate cuts are conducive to increasing the attractiveness of risky assets and may also lead more funds into the cryptocurrency market. According to a report by market research firm Blockware Solutions, if the Federal Reserve really starts to cut interest rates in September, Bitcoin will likely usher in a wave of price surges.
Analysts pointed out that unlike previous interest rate hike cycles, interest rate cuts are expected to bring continued upward momentum to cryptocurrencies. Bitcoin could experience a significant surge ahead of September’s rate cut. Many traders have begun positioning themselves in the hope of reaping huge returns when the market rebounds.
However, some experts believe that the price trend of cryptocurrencies in the short term will still be highly dependent on the policy direction of the Federal Reserve. If the rate cut is lower than market expectations, or Powell sends a hawkish signal in his subsequent statements, the cryptocurrency market may be under pressure again. Therefore, investors need to remain cautious in this context and pay close attention to the policy trends of the Federal Reserve.
It is worth mentioning that the Fed's interest rate cut policy not only affects short-term market trends, but will also have a profound impact on long-term investment strategies. As borrowing costs decrease, more and more institutional investors may allocate funds to cryptocurrency assets. This will further promote the maturity and development of the market and increase the market value and market share of mainstream cryptocurrencies such as Bitcoin.
In general, the upcoming interest rate cut cycle of the Federal Reserve has injected new impetus into the cryptocurrency market, but there are still many uncertainties in the future trend. Industry insiders generally believe that September will become the focus of observation, and the market will pay close attention to the subsequent movements of the Federal Reserve and its potential impact on cryptocurrency prices.
