Fed postponement of interest rate cuts creates more volatility

Speculation about Fed rate cuts keeps markets on edge. Right now, the price seems a bit confusing with no clear signal as to when the first rate cut could happen. Amid all the speculation, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, stated that he is satisfied with maintaining current interest rates and reiterated that he believes that lowering borrowing costs will only be acceptable towards the end of the year.

According to The Business Times, Bostic stated that while he still thinks inflation will reach the central bank’s two percent target, this process will likely take longer than most people expect. The head of the Atlanta Fed has already stated that he expects there will be only one rate cut this year.

Bostic’s view on the Fed’s rate cut is consistent with US economic data points. With 303,000 new jobs added in March 2024 – the largest increase in ten months – the US economy outperformed market expectations of 200,000 and a downwardly revised figure of 270,000 in February. This indicates that the economy remains robust. The unemployment rate fell from 3.9% to 3.8%, which was also below market expectations. This points to the continued strength of the US labor market, allowing the Fed to justify rate cuts and buy more time.

Federal Reserve Chairman Jerome Powell has previously expressed skepticism about the likelihood of a recession in the US economy. However, he acknowledged that it is difficult to predict when interest rates will be cut by the central bank. Due to the uncertainty surrounding possible future inflationary events, the Fed is currently supporting the state of the economy as it is.

Since December 2023, the market has priced approximately three rate cuts for 2024; the first rate cut was expected at the March meeting. However, economic facts and consistent signals from Fed leaders have significantly reduced expectations of this. The Bitcoin markets could be affected by this.

Historically, investors have placed great importance on the Federal Reserve’s interest rate decisions when evaluating assets. Government bonds typically lose value when interest rates are cut, making bitcoin and other virtual assets more attractive.

Market instability for cryptocurrencies has been caused by the Fed’s postponement of interest rate cuts, which may prompt investors to temporarily hold on to traditional assets. Moreover, strong demand for investments is maintained by a strong economy.

In prosperous economies, riskier investments are preferred. Given the current situation, it does not seem likely that the Fed’s decision will slow the pace at which the crypto market is expanding.