U.S. Federal Reserve’s Rate Cut Influences Bitcoin Market

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What does the Fed’s interest rate cut mean for Bitcoin?

The U.S. Federal Reserve (Fed) recently announced that a significantly looser monetary policy is planned for 2024. This has implications for various markets, including the cryptocurrency market and specifically Bitcoin.

The Fed’s Announcement

In its most recent policy decision, the Fed increased its expectations for interest rate cuts in 2024 to 75 basis points. This is a substantial increase from the 25 basis points expected three months ago. This news has further driven traditional markets, which have been in a strong recovery phase since October. The three major U.S. stock indices rose by more than 1% and the Dow Jones Industrial Average reached the 37,000-point mark for the first time.

Impact on Bitcoin

The Fed’s announcement also affected the price of Bitcoin. Despite a recent “flash crash” where prices fell by more than 5% within minutes, Bitcoin has recovered and is now only about 1% below its price before the crash. At the time of publication, the price of Bitcoin is $43,200.

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Are market participants overestimating the situation?

Although the Fed is forecasting a 75 basis point interest rate cut for 2024, markets have almost priced in 150 basis points. It is clear that even for the Fed’s most modest expectations, a significant slowdown in the economy and/or inflation would be required.

Economic Indicators

Despite popular claims of an impending recession, the data shows the opposite. The annualized growth of Gross Domestic Product in the third quarter was at an impressive 5.2% – the fastest pace since the fourth quarter of 2021. Additionally, there was more good news with a strong decline in initial jobless claims and an unexpected increase in retail sales in November.

Inflation Rate

The inflation rate, although it has dropped from double-digit values in 2022 to 3.1%, is still significantly above the Fed’s target of 2%. The core inflation rate, which usually receives more attention from central bank policymakers, has refused to drop and remained at 4% in the most recent report.

Conclusion

The Fed’s announcement of a loose monetary policy for 2024 has implications for various markets. For Bitcoin, this has led to a recovery in price, despite a recent “flash crash”. It remains to be seen how the situation will further develop and what impact this will have on the cryptocurrency market.

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