The pace of cuts will slow, according to the Fed chairman.
There are ambiguous expectations in the financial market.
The Federal Reserve (Fed), Central Bank of the United States, has just cut interest rates in the last three decisions of 2024. These movements have been key elements that motivated the rise of financial markets, including bitcoin (BTC) and cryptocurrencies. What will happen now that 2025 has begun?
Will there be more interest rate cuts in the United States or will they increase again? How could the development of the monetary policy of this economic power impact bitcoin and cryptocurrencies?
Some economists do not rule out a rate hike later this year if the economy remains strong and inflation grows. However, The general opinion is that the cuts will continue, but with a slowdown in the paceas estimated by the president of the Fed, Jerome Powell.
According to the Fed’s forecast, there will be two rate cuts in 2025 and another two in 2026. This is out of the eight planned definitions for each year, which means that on some occasions they would remain frozen without changes.
In line with this estimate, For the next rate decision, scheduled for January 29, there is now a 90% chance that they will remain the same. Meanwhile, the rest foresee a decrease of 0.25%. This is indicated, at least, by the CME Group’s expectations survey, which can vary day to day depending on the context.
Currently, interest rates are 425-450 basis points or, expressed as a percentage, 4.5%. This result came after three consecutive cuts: 0.25% in December, 0.25% in November, and 0.5% in September.
Such cuts come after rates remained at 5.5% for more than a year, their highest in two decades. And, it should be noted, that they still remain high, in relation to those registered just three years ago, when during the pandemic they were 0.25%.
“When Fed policymakers set short-term interest rates, they take into account whether inflation and unemployment are too high or low, which affects whether they should stimulate the economy or hit the brakes,” they explain United States university finance professors, Mr. Brian Blank and Brandy Hadley.
There are positive expectations for bitcoin in 2025
The specialists highlight that 2025 outlook for financial markets remains promisingwith continued economic growth in the United States. They attribute this to the resilience of consumer spending, the stabilization of labor markets and a less restrictive monetary policy.
However, they maintain that financial markets are currently at all-time highs, which may offer reasons for caution. In addition, they emphasize that high interest rates for a longer period of time could exert pressure that hinders demand.
D. Brian Blank and Brandy Hadley indicate that Some economists are concerned about the continued rise in unemployment and others about inflation.. Consequently, they see that fears remain due to greater risks of an economic slowdown.
They base the risks of continued inflation partly on possible increases in trade tariffs and tougher immigration that generates labor shortages. These are among several proposals from President-elect Donald Trump, who will take over the government on January 20.
In this sense, the movements of the incoming government in the United States that impact the economy can imply high volatility for the markets. This is something that bitcoin and cryptocurrencies are not exempt from.
Interest rate reductions increase liquidity in the economy, which enables greater capital inflows into financial markets. However, in the event of an increase in inflation and unemployment, this may be affected, which is why the development of these factors for prices will be key.
Although fewer rate cuts are planned this year, There are factors in the bitcoin market that strengthen optimism. Trump intends to make the United States the capital of the cryptocurrency industry and add BTC to the government’s national reserves. Therefore, its progress in this could encourage demand.
With this scenario, the markets are predicting new record prices for bitcoin in 2025. At the moment, as CriptoNoticias reported, its all-time high has been USD 108,000, recorded three weeks ago, in mid-December.
