“The risk of recession is low,” according to Coinbase

The US Federal Reserve (Fed) has decided to cut interest rates by 0.5 points, bringing them to 5%. Markets reacted with high volatility after the announcement, although doubts remain as to what direction the economy of the main financial power will take after such an abrupt reduction.

As reported by CriptoNoticias, this is the first cut in interest rates made by the organization led by Jerome Powell in more than four years and in this way cuts off long-standing monetary policy to cool the economy.

In this context, Coinbase, the largest cryptocurrency exchange in the United States, highlighted in its most recent report weekly the “positive reaction” of the market to the decision since “it reflects the relatively clear communication of the Fed on the future direction of monetary policy.”

During his speech Following the announcement of the cut, Powell said that are committed to maintaining the strength of the economy He added: “This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, the strength of the labor market can be maintained.”

In other words, the next employment data to emerge is expected to be, define the direction of the markets.

In this regard, the Coinbase report points out that the labor market has shown weakness, which could lead the Fed to cut interest rates faster than projectedespecially if employment data continues to decline.

Analysts at the exchange use non-farm payrolls (NFP) data as an indicator, which has been declining in every month of 2024, except for March.

The NFP measures the change in the number of people employed over the past month in all non-farm businesses and represents 80% of the workers who produce the entire gross domestic product (GDP) of the United States. It is the most important number of those that make up the employment report, that is, a first-rate indicator of the economy as a whole.

In this regard, Coinbase notes that “the labor market has shown weakness, which could lead the Fed to cut interest rates faster than it has projected, especially if employment data continues to deteriorate.” However, the weekly report clarifies:

“Beyond a slowly cooling labor market, we believe the broader economic outlook appears stable and the risk of recession remains low.”

Coinbase Weekly Report.

To argue that there is no risk of recession, mentions the projection of 3% GDP growthaccording to the Atlanta Federal Reserveand the sustained increase in the consumer spending levels and retail sales.

One of the main challenges for governments is to balance the expectations of economic actors and control interest rates so that they do not discourage investment or consumption abruptly, that is, so that what is known as a soft landing occurs. “We believe that this context of a more flexible policy environment and a resilient economy should be constructive for risk assets, in general,” the analysts conclude.

As CriptoNoticias explained, the term “soft landing” is used when those responsible for a country’s economy seek to cool it down to reduce inflationary pressures, without causing a deep contraction that affects employment and production.

Stimulus for the market

Bitcoin (BTC) and cryptocurrencies reacted to the Fed’s announced rate cut.

What happens is that in contexts with low interest rates, investors tend to look for assets considered risky, such as BTC and cryptocurrencies, which They usually have a higher profitability potential compared to other financial instruments such as Treasury bonds.

In the case of the digital currency created by Satoshi Nakamoto, its price soared above $63,000, which represents a weekly increase of 10%. Its current price is $63,200.

Coinbase also shared how trading volume on the exchange was distributed by asset after the Fed cut interest rates by 0.5 points. As seen, BTC, USDT, and ether (ETH) were the digital currencies that exceeded double digits.

However, he notes: “Native crypto traders have begun to make more significant allocations to altcoins” (cryptocurrencies other than bitcoin).

Rumors of recession

Despite Coinbase’s enthusiasm, there are other analysts who remain expectant and They are not as optimistic about the cut announced by the Fed.

For Daniel Muvdi, head of markets at trading platform Quantfury, “the 50 basis point cut tells us that Powell is seeing that things are getting complicated and that employment is bad.” holds:

“The 50-point cut is not good news, in fact it is clearly a sign that they are in deep trouble. And beware, in November the chances of a further 50-point cut are 51%. For me, the risk market is about to enter a period of correction.”

Daniel Muvdi, Head of Markets at trading platform Quantfury.

In turn, shared a graphic where he gives his projection and maintains that the probability of a recession in the United States economy reached 50% by June 2025.

The image shows how the blue line, which represents the probability of a soft landing, continues to decline, while the white line (recession) is increasing.

For its part, Banking giant Goldman Sachs He argues that the market “is pricing in Fed rate cuts of more than 2.0 points within 12 months, the largest level since the financial crisis.”

To complete his projection, he shares a chart in which he highlights the initial part of the curve is consistent with high recession expectations and the market-implied probability of a recession in the next 12 months.

The black line (US 10y-2y) reflects the difference between the 10-year and 2-year Treasury bond yields. Historically, when short-term bonds yield more than long-term bondssuggests a sign of a possible recession. In the pink area (years 2008 and 2009) you can see that there was a recession when these patterns were repeated.

“This implies a 100% probability of a recession in the next 12 months,” Goldman Sachs concludes.