Expected May rate reductions by the Federal Reserve could bring positive outcomes for the crypto markets

Crypto News– Bitcoin  BTC +0.32% posted an uptick on Monday, taking the digital asset back above the $43,000 mark. The price move comes as markets anticipate the initiation of the U.S. central bank’s rate-cutting cycle to begin at May’s Federal Open Market Committee (FOMC) meeting.

Expected May rate reductions by the Federal Reserve could bring positive outcomes for the crypto markets

The world’s largest cryptocurrency by market capitalization increased by over 0.5% in the past 24 hours to $43,100 at 7:30 a.m. ET, according to The Block’s Price Page.

According to ETC Group Head of Research André Dragosch, market participants expect the Fed to commence its rate-cutting cycle in May, based on what is currently priced into Fed funds futures.

Fed funds futures contracts essentially represent the market’s expectations for future interest rates. Investors can use these futures contracts to express opinions on the direction of interest rates and to manage interest rate risk in their portfolios.

Speaking to The Block, Dragosch added that the market has priced out the possibility of the commencement of a Fed rate cut in March. This aligns with Federal Reserve Chair Jerome Powell who ruled out an earlier rate cut in 2024, when interviewed on CBS’ 60 Minutes on Sunday.

Powell stated that a rate cut in March, as anticipated by Wall Street, is “not likely” to happen. “We’ve said that we want to be more confident that inflation is moving down to 2%,” Powell said in the interview. “I think it’s not likely that this committee will reach that level of confidence in time for the March meeting, which is in seven weeks.”

Regional bank strains may lead to reductions

However, Dragosch noted that the potential for prolonged higher interest rates and the latest U.S. employment figures could paradoxically elevate the likelihood of an earlier rate reduction.

He stated, “I believe a shift in monetary policy could be prompted by both a rise in systemic risks within the banking sector and/or a notable uptick in the unemployment rate.”

Dragosch further explained, “The longer the Federal Reserve maintains rates at their current levels, the greater the likelihood of encountering a sort of ‘accident’ or credit event within the regional banking sector, particularly among institutions with substantial exposure to U.S. commercial real estate. The recent strain observed in bank stocks like New York Community Bank serves as a telling indicator in this regard.”