Bitcoin Rally Stalls as Market Awaits Key Fed Rate Decision
On September 18, the Fed is predicted by many to announce a reduction in interest rates, starting the so-called easing cycle that has historically boosted risk assets, such as bitcoin. In this light, the price rebound of Bitcoin appears to have been halted by the peak uncertainty. The magnitude of the upcoming rate decrease, however, is dividing traders, which could lead to a spike in market volatility following Wednesday’s rate announcement.
Because of the uncertainties around the rate drop, Bitcoin‘s upward momentum from recent lows of $52,530 has paused. As of this writing, the top cryptocurrency by market value has dropped from $60,660 to $59,037.
Rarely has the market gone into the Fed meeting with maximum uncertainty (halfway between 25bps and 50 bps). I suspect a 50 bps cut would not be good for risk assets on ideas that the Fed is more concerned about the economy and would seem to be acknowledging that it should have cut in July,
Marc Chandler, chief market strategist at Bannockburn Global Forex
Analysts Predict Crypto Downturn If Fed Opts for Larger 50 bps Rate Cut in Upcoming Meetings
A 50 basis point drop might indicate fear and reduce demand for riskier assets, such as cryptocurrency, according to several analysts. Following the publication of a piece by Wall Street Journal’s Nick Timiraos last week speculating on the extent of the rate decrease, the likelihood of a 50 basis point cut increased. A few Fed policymakers also cheered risk assets by hinting at the possibility of a larger rise.
The market had been settling on a 25 bps rate cut before what some suspect is a planted story by Fed officials to put 50 bps back on the table Thursday. The market took the bait and ratcheted up the odds of not only one, but two half-point cuts and a quarter-point cut in the three remaining meetings of the year. The market is currently pricing in a sub-3% Fed funds target by the end of next year. Also, at 4.3% in July (4.2% in August), the unemployment rate is at the Fed’s long-term equilibrium level. Will this be changed?
Chandler
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