FOMC Meeting Begins, But Bitcoin May Not Benefit From Potential Rate Cuts

FOMC Meeting Begins, But Bitcoin May Not Benefit From Potential Rate Cuts

As the Federal Open Market Committee (FOMC) meeting kicks off today, the U.S. Federal Reserve is widely expected to announce a cut to interest rates after the two-day event concludes. Historically, a Fed rate cut has been viewed as a bullish signal for Bitcoin and the broader cryptocurrency market, as lower rates often result in increased liquidity and upward price momentum. However, prominent economist Peter Schiff has expressed skepticism, suggesting that this time, Bitcoin may not see the usual benefits from such a policy shift.

Schiff, in a recent post on X, raised doubts about whether upcoming rate cuts will meaningfully reduce interest rates for most borrowers. He pointed to mortgage rates, which, he argues, have likely already bottomed out and are set to rise.

Additionally, Schiff anticipates that the Federal Reserve may resort to quantitative easing (QE) to combat rising interest rates, but warned that this could further weaken the U.S. dollar and drive inflation higher. Should this scenario unfold, it could have a negative impact on Bitcoin prices, contrary to the typically bullish reaction to rate cuts.

While Bitcoin is expected to benefit from an influx of liquidity due to a rate cut, Schiff’s forecast implies that lower borrowing costs may not materialize, meaning the expected boost to Bitcoin’s liquidity may not occur as anticipated.

Further complicating the outlook is the potential return of rising inflation in the US economy. Historically, Bitcoin has struggled in periods of inflationary pressure, as investor sentiment tends to turn away from riskier assets like cryptocurrencies. Schiff has even suggested that Bitcoin could experience a significant decline, potentially dropping to $20,000. He pointed to a possible “triple top” formation on Bitcoin’s price chart as a warning sign of a major price correction.

A 75 Basis Point Rate Cut Now in Play

Ahead of the FOMC decision, Senators Elizabeth Warren and two other Democratic lawmakers have called on Federal Reserve Chair Jerome Powell to implement a substantial 75 basis point (bps) rate cut to safeguard the U.S. economy. While it remains to be seen whether the Fed will respond to this call, it presents a new angle to the conversation. Most predictions so far have centered on a more modest rate cut of 25 to 50 bps.

At the moment, market expectations seem to favor a 50 bps cut, with CME FedWatch data indicating a 67% chance of this outcome, while the likelihood of a 25 bps cut has fallen to 33%. Some analysts have cautioned, however, that inflation in the U.S. has not cooled enough to warrant a 50 bps reduction.

Investment giants Goldman Sachs and JPMorgan have both forecasted a 25 bps cut, noting that assets like gold may see short-term declines following the Fed’s decision.

Popular crypto analyst Lark Davis has also weighed in, predicting significant short-term volatility for Bitcoin in the wake of the FOMC meeting. Despite this, Davis remains optimistic about Bitcoin’s long-term prospects.