On September 18, US time, the Federal Reserve announced a 50 basis point interest rate cut at its highly anticipated September interest rate meeting, lowering the target range of the federal funds rate from 5.25% to 5.5% to 4.75% to 5%.
Fed Chairman Powell said at a press conference that day that this was the beginning of a series of interest rate cuts. His statement clearly announced to the outside world that the Fed has officially ended the round of monetary tightening cycle that began in 2021 and entered a new loose monetary policy cycle.
The reason for the Fed's rate cut
The main reason for the Fed's 2 basis point rate cut is to preventively maintain the stability of the economy and the labor market, rather than to indicate an impending recession or a collapse of the job market. Chairman Powell emphasized that this move is aimed at boosting market confidence and reducing concerns about a recession, thereby increasing the possibility of a soft landing. If a soft landing is successfully achieved, it will have a positive impact on the global venture capital market.
Judging from market data, although the inflow of funds into Bitcoin spot ETFs has slowed down, it still maintains a positive inflow. At the same time, the total market value of USDT has increased from US$104.7 billion in April this year to the current US$118.7 billion, and the market value of USDC has increased from US$34.4 billion at the end of August to US$35.5 billion, indicating that over-the-counter funds are still continuing to enter the cryptocurrency market.
In addition, there are seasonal trends in the crypto market. Summer is usually dull, but the end and beginning of the year tend to perform well. In the past nine years, except for 2018, which was dragged down by the bear market, Bitcoin performed strongly from 2015 to 2023. This year's end may be expected to continue this historical trend.
Interest rate forecast and economic outlook
According to the latest Fed interest rate dot plot, policymakers expect a total of 2 basis points in two meetings in November and December this year. Possible approaches include a 1 basis point cut in each of the two meetings, or a 2 basis point cut in one of the meetings. In addition, the dot plot also predicts that there will be 4 rate cuts in 2025 and 2 rate cuts in 2026, suggesting that interest rates may eventually fall to a range of 2.75% to 3%. Although Powell added that future interest rates are unlikely to return to the ultra-low levels before the epidemic.
If the interest rate forecasts for the next few meetings are in line with market expectations, the risk of a large-scale recession will be significantly reduced. This trend deserves continued attention.
