Key results:
The decisions of the interest rates of the interest committee of the US Federal Reserby (FOMC) Open Reserby (FOMC) will be a decisive moment for risk -related assets, including cryptocurrencies. While the consensus indicates no change in interest rates, Bitcoin (BTC) and Altcoins could see profits if the US treasure is forced to inject liquidity to stop the economic recession.
A more accommodating monetary policy can stimulate activity, but the federal reserve (FED) also fights with weakening American dollars. Some analysts say that an American interest rate reduction may not stimulate growth as the risk of recession is maintained, potentially creating an ideal environment for alternative hedging resources such as cryptocurrencies.
Economist and investor Jim Paulsen notes that when FED funds trade above the “neutral” interest rate (FED funds minus the annual expenditure indicator for personal consumption), the economy has historically changed in the direction of recession or “growth recession”, a period of tardy growth along with growing unemployment and indigent consumer demand. Similar patterns have confirmed this analysis since 1971.
According to Paulsen, Fed will probably be forced to lower interest rates. In addition, the chairman of the Central Bank Jerome Powell is under significant pressure on the part of the US President Donald Trump, who criticized the Fed for not reducing the cost of capital quickly enough.
Reasons why the Fed may start gentleness
Fears of overheated markets remain because consumer inflation in the US exceeds 2%, and the April unemployment rates of 4.2% do not suggest any signs of economic weakness.
Market expectations, reflected in the Treasury Futures, show 76% chance of interest rates at 4.0% or lower until September 17. This probability dropped significantly from 90% on April 29, according to the CME Fedwatch tool.
Traders become less sure that the FED will relieve monetary policy. Although this may initially seem bears in the field of risk assets, it may lead the State Treasury to introduce liquidity to markets to support government expenditure.
Regardless of the FOMC decision, some analysts indicate that the Fed’s last fed tax bond worth $ 20.5 billion purchase On May 5, the signals renewed the intervention. Additional liquidity was historically stubborn at cryptocurrencies, especially since the American dollar remains behind other main global currencies. Therefore, investors are increasingly looking for alternative hedges and do not have cash.
Related: The bitcoin price increased by 1,550%, last time the “BTC risk risk rate” fell to this low level
The American dollar index (DXY) first fell below 100 since July 2023, when investors withdraw from American markets due to economic uncertainty. Meanwhile, gold has increased by more than 12% in the last 30 days and currently trades only 2% below the highest level of USD 3500. Backing trust in the US Treasury’s ability to finance debt favors circumscribed assets such as Bitcoin.
Although the likelihood of lowering many rates has decreased, this scenario may still be beneficial to cryptocurrencies. If the Fed is forced to expand the balance sheet, it would probably fuel inflation and risk the value of constant income investment factors, which ultimately support cryptocurrencies.
This article is used for general information purposes and should not be and should not be treated as legal or investment advice. The views, thoughts and opinions expressed here are themselves and do not necessarily reflect or represent the views and opinions of Cointelegraph.
