A major interest rate cut by the US Federal Reserve will benefit risk assets and the crypto market, not be a bearish signal as some believe, according to a crypto hedge fund manager.
Joe McCann, founder and CEO of Asymmetric, told Cointelegraph that the decision to cut interest rates by 25 or 50 basis points was a “lucky call” as the U.S. central bank is expected to cut rates from a 24-year record high of 5.5% on Wednesday, September 18, for the first time since March 2020.
McCann said when an outcome is priced at a 70% chance in the Fed futures market, it typically has a 100% success rate.
The CME Fed Watch tool now predicts a 65% chance of a larger 50 basis point cut, compared with a 35% chance of a 25 basis point cut.
He added that recent media coverage and statements from former Fed governors have influenced market expectations toward a 50 basis point cut.
However, McCann believes that a 25 basis point rate cut could be bad news for the cryptocurrency market.
“I think if the Fed cuts 25 basis points, the stock market will be under a lot of pressure. Cryptocurrencies will likely follow. And the reason is because you have stocks hitting all-time highs, assuming there’s going to be a 50 basis point cut.”
McCann also said that if the Fed cuts by 50 basis points, it could be positive for risk assets like cryptocurrencies.
Saad Ahmed, head of Asia Pacific at crypto exchange Gemini, told Cointelegraph that the market may have already priced in the rate cut, but it could create a breakout.
“I think a lot of this is probably already priced in because people are expecting it. But sometimes it takes a trigger to help the price break out of the range.”
If there is a 50 basis point cut, “Finally, you know, risk-taking is back on the table,” he added.
McCann dismissed the popular notion that a 50 basis point cut would be a bad sign, noting that the last few times the Fed cut rates were in emergency situations, such as the 2008 financial crisis, the dot-com bubble of the 1990s, and the Black Monday crash of 1987.
However, the economy is now “booming” and more stable, with GDP growth of 3%, McCann said.
Furthermore, the rationale for the larger cut includes stimulating growth in 2025, reducing net interest payments to the U.S. Treasury—helping people sell homes, refinance mortgages, and protecting against negative data ahead of the presidential election.
On September 17, the macroeconomic blog The Kobeissi Letter wrote, “The market has not been so uncertain about the Fed's interest rate decision in at least 15 years.”
