By Jack Inabinet, Bankless
Compiled by: Shan Ouba, Golden Finance
The Federal Reserve just announced a rate cut, its first since the pandemic, by a massive 50 basis points, as expected. The long-awaited decision immediately sparked excitement among stock and cryptocurrency investors.
Powell’s printing presses are finally back on, which is why many in the market are optimistic that this rate cut could spark another cryptocurrency bull run.
In 2022, the Federal Reserve raised interest rates to combat high inflation, causing borrowing costs to rise and asset prices to fall, triggering a bear market. However, as interest rates fall, many expect monetary easing to gently guide the global economy to a "soft landing."
If inflation does not surge, and if rate cuts help keep unemployment stable, central bankers could accomplish the unthinkable – eliminate significant economic uncertainty and achieve a level of global economic stability not seen in decades!
While the Fed’s latest economic projections appear to favor further rate cuts in the future, they also reflect the uncertainty of the situation, with inflation forecasts being revised down, GDP estimates being flat and unemployment expectations rising sharply.
The biggest economic risk has shifted from rising inflation to falling employment, as evidenced by the rate cut decision. While Fed members and other central bankers are confident they can manage these risks with further rate cuts, any sustained economic downturn could quickly turn into a severe recession fear.
Global bond yields, which had been rising since Tuesday, fell only slightly after the rate cut news was confirmed, indicating that the market had already factored this factor into its early decline since July. Although Bitcoin rose by about 2% after the rate cut news, the market soon began to sell off, erasing the gains before the close.
While the initial excitement from the rate cuts was palpable, the market's rapid reversal suggests uncertainty remains. Investors are now closely watching how the economy responds to these changes, hoping for a smooth transition but wary of potential bumps ahead. Whether this will actually spark the next crypto bull run or spur deeper recession fears remains to be seen as the balance between inflation, employment, and growth continues to unfold.
