The Federal Reserve may not cut interest rates as much as market participants expect, but the broader market is still hopeful about a September rate cut, according to a portfolio manager.
“In an environment where the market is pricing in a 100 basis point discount by year-end, there is no real rationale to support this thesis,” Justin Elliot, portfolio manager at Caldwell Investment Management, told Bloomberg in an interview on Aug. 14.
Doubts About Fed’s ‘Level of Aggressiveness’
Elliott said he believes inflation will continue to trend in the right direction. He also warned market participants not to be overly optimistic that the economy will continue to slow, stressing that the economy is performing “really well” and retail sales remain “really strong.”
“If you think the economy is going to continue to slow and then ease up, we think even the new forecasts run the risk of being a little bit too optimistic and there could be some forecast changes as the year progresses.”
Elliot added that many investors believe that Bitcoin will see new highs with the Fed's decisions, but this is not an absolute guarantee. Noting that interest rates are of great importance for Bitcoin, Elliot stated that low interest rates direct investors to riskier products such as stocks and cryptocurrencies instead of risk-free instruments.
Bitcoin's Fall and Crypto Industry Prospects
Elliot’s comments came after the U.S. Bureau of Labor Statistics (BLS) announced on August 14 that the Consumer Price Index (CPI) for July was up 2.9 percent annually. Bitcoin fell by nearly 3 percent following the announcement, falling to $58,900 during the day. Eliézer Ndinga, director of digital asset strategy and business development at 21Shares, stated that Bitcoin’s decline was “driven by expectations of a more dovish interest rate cut.”
But the crypto industry is still looking to September’s expected rate cut with hope. “The continued slowdown in US inflation will further strengthen the likelihood of a Fed rate cut,” ETC Group research director Andre Dragosch wrote in an X post on August 14.
“The CPI data is out and it’s positive, slightly lower than expected. The possibility of a Fed rate cut is imminent, which is positive for the possibility of QE and Bitcoin’s upward price action,” commented MN Trading founder Michael van de Poppe.
“Rates cuts are a necessary condition to ensure continued US dollar weakness and Bitcoin retests all-time highs,” Zach Pandl, Grayscale’s head of research, told Cointelegraph recently. “For crypto investors, the incoming data could be a signal for an earlier rate cut,” Pandl added.
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