Author: BitpushNews
On Wednesday afternoon local time, Federal Reserve Chairman Jerome Powell announced that the benchmark interest rate would be cut by 50 basis points to a range of 4.75% – 5.0%, marking the start of a loose monetary policy cycle in the United States.
In addition to announcing the first rate cut in more than four years, the latest FOMC projections show the Fed will cut rates two more times in 2024, with most officials expecting the central bank to cut rates by a total of 100 basis points this year. Rates are expected to fall further in 2025, with a forecast of 3.4%, with long-term rates bottoming out at 2.9%. This typically helps stimulate markets as traders tend to allocate to risky assets on the prospect of a return to loose monetary policy.
Bitcoin data shows that Bitcoin quickly rose and pulled back during the session, soaring from the $60,000 support level to an intraday high of $61,357, and then returned to the support level near $60,000. As of press time, Bitcoin is trading at $60,231, with a 24-hour volatility of less than 1%.
The Altcoin market had mixed reactions, with ZetaChain leading the gains among the top 200 tokens, up 20.6%, followed by Saga (SAGA) and Nervos Network (CKB), up 13.7% and 11%, respectively. KuCoin Token (KCS) led the declines, down 6.1%, OriginTrail (TRAC) down 5%, and Echelon Prime (PRIME) down 4.3%.
The current overall market value of cryptocurrencies is $2.09 trillion, with Bitcoin accounting for 57.2% of the market share.
In traditional markets, U.S. stocks rose sharply and then fell back after the announcement of the rate cut. As of the close, the S&P, Dow Jones and Nasdaq indexes all fell, down 0.29%, 0.25% and 0.31% respectively. Spot gold broke through $2,600/ounce for the first time during Powell's press conference, and then gave up its gains. As of press time, the trading price was $2,557.30/ounce, down 0.46% on the day.
Volatility is expected to increase further
"The Fed gave the market what it wanted with a bigger 50 basis point rate cut," LMAX Group market strategist Joel Kruger said in a note. "Now that the market has priced in this level of easing, the next concern will be whether the market can continue to be optimistic about risk assets under future Fed easing."
From a technical perspective, Secure Digital Markets analysts noted that BTC’s attempt to break above $61,000 failed on Tuesday, with prices retreating after Wall Street’s close. The daily chart shows a clear bearish rejection from the 100-day moving average and a continued trend lower over the past month.
Arthur Hayes, co-founder of BitMEX and chief investment officer of Maelstrom, also warned about the outlook for asset prices after the first rate cut in his Token2049 keynote speech, saying it could trigger a sharp drop in risky assets.
"I think it was a huge mistake for the Fed to cut rates because the U.S. government is printing and spending the most money it has ever spent in peacetime, and while I think a lot of people were expecting a rate cut, which means they thought there would be more chaos in the stock market and other things, I think the market would collapse a few days after the Fed cut rates," he said.
Although liquidity easing cycles have historically favored BTC, Hayes warned that the move could exacerbate inflationary pressures and push up the yen (JPY), leading to widespread risk aversion. He said: "Cutting rates now is a mistake because inflation remains a long-term problem in the United States, driven primarily by government spending. Cheaper borrowing will only add fuel to the inflation fire."
He also said that a potential rate cut could cause the market to fall because it would "narrow the interest rate differential between the dollar and the yen" (previously in early August, a large-scale liquidation of yen-based carry trades by investors triggered a wave of crashes, and BTC retreated to below $50,000).
Block Scholes founder and CEO Eamonn Gashier also warned about the impact of the newly announced rate cut on the market and the yen carry trade.
"A 50bp rate cut suggests the Fed is more concerned about deteriorating labor market conditions than a second inflation event, and further rate cuts this time around will weaken the dollar and could lead to a modest rise in JPY/USD," Gashier said in a note. "While expectations are that the BoJ will pause on rate hikes, a weaker dollar could lead to another unwinding of the yen carry trade, with possible repercussions for risk assets."
He noted: “Given the correlation between Bitcoin and the U.S. stock market since the launch of the Bitcoin ETF, the performance of the S&P 500 in past rate cut cycles can serve as a useful indicator of what to expect next. Historically, recession cycles triggered by a 50 basis point rate cut have all begun against the backdrop of widespread concerns about macroeconomic weakness, which has led to a long-term downturn in risk assets. However, the magnitude of this rate cut may be different and can be seen as the Fed taking additional measures to strengthen the labor market.”
The 50 basis point rate cut has brought a short-term boost to the market, but market expectations for the future economic outlook of the United States are severely divided. Some investors are optimistic about a soft landing of the economy, while others remain wary of inflation and geopolitical risks. Therefore, in the short term, market trends may be more complex and changeable.
