Last night cryptocurrencies is extremely critical for interest rate decision announced. More importantly, we saw Powell give important signals about the discount route. Ultimately, Bitcoin $62,039 It rose above $63,000 again and cryptocurrencies turned green. So how should we evaluate what we heard at the Fed meeting?
The Fed and What Comes After
Historical data suggests that we should be concerned about something similar to the risk market crash we experienced after the interest rate cuts in late 2000 and 2007. What we have been pointing out for weeks is that the crash was interest was due to the economic recession, not the reductions. For example, let’s remember the last major crisis. The difference between 2007 and today is that the crisis we saw with the 2007 reductions was the bursting of a huge debt bubble.
In today’s U.S. economy, the growth in spending by households and businesses is directly proportional to the increase in income. In other words, we are not facing a situation that will trigger a recession. Although households have spent more of their increased income in the last year, this spending is due to saving less rather than borrowing more.
This also suggests that household balance sheets are at their best levels in recent memory. While almost all cycles have self-reinforcing elements, those driven by debt are much more severe than those driven by income growth and changes in expectations. In short, under today’s conditions, we may not see the Fed’s rate cuts coincide with the risk of a major recession.
Now let’s go back to last night. The Fed announced a different decision than the data in the Bloomberg survey published yesterday. Although market expectations have recently shifted to a 50 basis point cut, only 9 of the 114 economists who participated in the survey expected a 50 basis point cut. The reason for this was the assumption that the Fed would give the markets the message that it would not act hastily.
However Powell In his statement yesterday, he said, “Even though we made a 50bp cut, don’t think of it as a trend or tempo.” In other words, they are probably taking such a big step so that they can make 25bp cuts more easily in subsequent meetings. The last time they made a cut of more than 25bp was in 2000 and 2007 since 1980. In other words, they felt the need to take such a big step in the midst of major problems at that time. One of the reasons why economists expected 25bp was the fact that we were not in such a bad environment.
One of the most important details of the Fed evening was the newly published dot chart. This shows us the expectations of Fed members regarding interest rate cuts for the next 3 years. At the June meeting, Fed members estimated that interest rates could be reduced to 5.1% by the end of 2024. Now, 4.4% is targeted. The median estimate for the end of 2025 was 3.4% and the June estimate was 4.1%. In other words, there is a significant downward revision.
The ceiling estimates for the unemployment rate in 2024 and 2025 are 4.4%, but this rate is already 4.2% and Powell said we will take additional supportive steps if necessary. The 202 estimate for gross domestic product was lowered from 2.1% to 2%.
Powell gave very clear messages and explained that they took this step because they were confident that the strength of the labor market would not be damaged further. He also said that we can accelerate, slow down or even pause interest rate cuts as needed. In other words, while we will continue with 25bp cuts in the upcoming meetings, if the economy shows alarm, 50bp cuts can also be implemented.
The main problem with yesterday’s messaging was a reluctance to expand the balance sheet. Powell, who still sees ample reserves, likely wants to keep more expansionary room in the pocket when he sees bigger problems on the employment and spending side.
Prospects for Cryptocurrencies
Cryptocurrencies In the current conditions, money is now starting to become cheaper, it is obvious recession should rise because we haven’t seen the alarms. What we have been discussing continuously for the last quarter was that there would be an increase and as we approach October, the Fed has prepared the ground for this with a serious cut of 50bp. The appetite in risk markets should now start to increase again.
Historically, transition periods to low interest rates are positive for Bitcoin and altcoins. On the other hand, if we look at the US stock markets, we see new records. Stock markets also attracted serious demand with the excitement of the start of the interest rate reduction cycle.
Under current conditions, the risks ahead have not completely disappeared. Potential walls such as geopolitical risks and the European Central Bank’s expectation of a resurgence in inflation for the last quarter may block the bulls’ path. But we know that when the Fed started raising interest rates in 2022, the market began to collapse in line with this. Now the exact opposite is happening and the markets must now move in the opposite direction.
Employment, PMI, inflation The data is still important, but since interest rates have started to be lowered, it should not be expected that surprise data for 1 or even 2 months will have a big impact. The Fed waited this long and lowered interest rates because it does not want to increase them again after the reduction, at most it has a chance to pause. This tells us that we have reached the light at the end of the tunnel, and the nightmare that has been going on for 2 quarters may now be over. And of course, these are not opinions shared by seeing the future, they are all just predictions, and cryptocurrencies are always full of surprises.
Disclaimer: The information contained in this article does not contain investment advice. Investors should be aware that cryptocurrencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
