What will happen to BTC if the Fed announces a big rate cut?
Bitcoin (BTC) rallied today, breaking above $60,000 amid growing optimism that the Federal Reserve will decide to implement a big rate cut.
A week ago, BTC fell to a low of $53,300 as a weaker-than-expected August jobs report raised concerns about the U.S. economy. However, sentiment has changed ahead of the Fed meeting, which is expected to cut rates for the first time since 2020.
Initially, investors expected a 25 basis point rate cut, but recent reports from the Wall Street Journal and the Financial Times suggest the central bank may consider a more aggressive 50 basis point cut. As of now, the probability of a 50 basis point rate cut has risen to 40% from 28% the day before, according to CME Group.
The change in outlook has prompted policymakers to pay more attention to the health of the labor market as inflation slows toward the Fed's 2% target. A bigger rate cut could ease monetary conditions by pushing the Fed's benchmark rate toward neutral. But some analysts warn that a bigger rate cut could signal deeper concerns about a potential recession, which could negatively impact riskier assets like Bitcoin.
“Lower monetary policy and lower real interest rates tend to benefit peer assets like gold and Bitcoin while weakening the dollar,” said Zach Pandl, director of research at Grayscale. “However, if the Fed cuts rates by 50 basis points, the market could interpret it as a sign that the Fed is worried about the economy, which could hurt riskier assets, including Bitcoin.
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