Key facts:
Markets are pricing in cuts like those in past recessions, the agency says.
Analysts are predicting a rate cut of just 25 basis points.
BlackRock Investment Institute has issued a note stating that the US Federal Reserve (FED) will not follow market expectations regarding interest rate cuts. Although markets are pricing in deep cuts, BlackRock believes these expectations are exaggerated.
According to the institute, which is an arm of the world’s largest asset manager, the US economy is showing resilience, with inflation remaining a key focus.
“As the Fed prepares to begin cutting, markets are pricing in cuts as deep as those in past recessions,” says BlackRock. However, the firm argues that despite a recent spike in unemployment, employment is still growing, and supply constraints will continue to put upward pressure on prices.
We Li, chief investment strategist at BlackRock, declared on Monday that speculation that the Fed waited too long to ease and will now be forced to cut at an accelerated pace to shore up the economy is misplaced. According to Li, the Fed will cut rates by 25 basis points on Wednesday, a more moderate movement than many analysts and the market in general anticipated.
“We think markets are a bit over-pricing in the depth of the rate-cutting cycle,” Li said. “The rate-cutting cycle is starting, but perhaps not as deep as markets seem to be pricing in.”
This BlackRock forecast has significant implications for the broader financial market. A 25 basis point cut in interest rates, though moderate, could inject some liquidity into the systemwhich typically benefits risk assets. However, the expectation of less deep cuts could lead to a revaluation of investments, especially in sectors that benefit from low rates such as construction, real estate, and certain types of bonds.
Effect of rate cuts on the cryptocurrency market
In the context of the cryptocurrency market, and specifically bitcoin (BTC), a 25 basis point rate cut could have a dual impact. On the one hand, the injection of liquidity could increase demand for assets like BTC, seen by many as a store of value in times of inflation.
On the other hand, the perception that the Fed is not on an aggressive cut mission could temper enthusiasm as investors could expect a higher rate environment for longer, which is not necessarily favorable for non-cash generating assets like cryptocurrencies.
The price of BTC, which has shown an increasing correlation with traditional markets and monetary policy expectations, may experience volatility, as other analysts such as John Mason have warned, as reported by CriptoNoticias.
If the market perceives that the FED is taking a more cautious stance, There could be a re-evaluation of bitcoin positionspotentially leading to a correction if investors adjust their expectations of future rate cuts.
BlackRock’s outlook on Fed rate cuts suggests a more conservative approach to monetary policy, which could lead to a reconfiguration of investment strategies in the overall market and specifically in the cryptocurrency market. The Fed’s decision on Wednesday It will be crucial to see how market expectations align. with the reality of monetary policy.
This article was created using artificial intelligence and edited by a human on the editorial staff.
