What does an interest rate cut mean?
It is when a central bank, like the Federal Reserve of the United States (Fed), decides to lower the cost of money. This is reflected in lower interest rates for loans, mortgages, and credit cards, making it cheaper to borrow money.
Why does the Fed cut rates?
The main goal is to stimulate the economy when there are signs of slowing down or economic troubles. By reducing rates:
Businesses can take out cheaper loans to invest and grow.
Consumers can spend more because their credit costs less.
Consumption and investment are encouraged, which can help boost economic growth.
Impact on cryptocurrencies:
When interest rates fall, investing in traditional assets like bonds or savings accounts becomes less attractive, as they offer lower returns. That's why:
Investors tend to seek alternative assets, like cryptocurrencies, which offer greater return opportunities.
This can increase the demand for cryptocurrencies like Bitcoin, which often raises its price.
However, it can also increase volatility in the market because investors quickly adjust their strategies to the new conditions.
