Key facts:
Rates in the United States are expected to fall to 5.25%.
A larger-than-expected rate cut could be bearish for markets, analysts say.
The day that the markets have been waiting for, including the Bitcoin (BTC) and cryptocurrency markets, has arrived. Today, the FOMC, the body in charge of monetary policy of the Federal Reserve (Fed), the Central Bank of the United States, will publish its interest rate decision.
The announcement will take place at 2:00 p.m. New York time, which, for perspective, is equivalent to 3:00 p.m. in Buenos Aires and 8:00 p.m. in Madrid. Half an hour later, Jerome Powell, the Fed chairman, will give a speech to explain the decision.
The forecast is that the interest rates down 0.25% to 5.25%beginning a phase of cuts. For more than a year, these have been fixed at 5.5%, the highest in two decades, as shown below.
“We expect the planned rate cuts to have a considerable impact on digital asset prices,” said Javier García de la Torre, director of crypto exchange Binance in Spain and Portugal. The reason is that they imply a reduction in borrowing costs and an increase in liquidity.
In this sense, the exchange manager summarized that lower interest rates boost the demand for higher-yield and riskier assetssuch as crypto assets. He exemplified that the price of bitcoin increased 375% between 2020 and 2022 when rates were close to zero.
The presence of spot ETFs could also ease transitions between equities and cryptocurrencies, allowing increased liquidity from rate cuts to flow into crypto markets, he said.
He then considered that Monetary policy changes in September could be timely for bitcoin and cryptocurrency investors. Therefore, the market could react with high volatility, although he clarified that this might not be immediate.
“While September is typically a historically weak month for digital assets, prices typically rebound from October onwards, and the expected rate cuts could provide an additional boost as prices rebound,” Garcia de la Torre said.
A low or very high rate cut could be bearish for BTC in the short term
Colombian analyst Juan Rodriguez warns that interest rate cuts are positive for the markets as long as the economy does not show any major signs of weakness. He notes that expectations of a 0.50% cut have increased due to pressure from some congressmen who asked Powell for a 0.75% reduction.
“Here, many people are wondering what size of cut will be bearish and what will be bullish,” he said about the short-term situation. In his opinion, with this outlook, a reduction of 0.75% would mean that the economy is very weak, so the markets would fall quite sharply.
Rodríguez believes that the request for a 0.75% reduction is made so that the market does not see a 0.5% cut as bearish. In his view, this changes the perspective, making a 0.25% reduction be considered a “lukewarm” measure for the economy. Therefore, Although this last possibility was considered bullish until recently, it is no longer.
The specialist goes on to say that a 0.25% reduction would be interpreted as the Fed having thrown away the opportunity to catch up with the cuts and would add pressure for the next FOMC decision in November. “And if by then we have bad employment data, things get complicated and goodbye to the end-of-year rally,” he projected about BTC.
He therefore sees a 0.5% cut as the best option for the markets. That would help Bitcoin to have an upward trend towards the end of 2024.predicts. Meanwhile, the currency is trading around $60,000 (USD), within the corrective lateral range it has been in for six months when it set a new all-time high.
Given this uncertainty, he stressed that in addition to the size of the cut, Powell’s speech and his responses to journalists will be relevant. He also stressed that the data that emerges on employment and the economy in the following weeks will be key.
