The possibility of a rate reduction by the US Federal Reserve in December has seen an upturn, as per the data from the Federal Reserve Economic Data (FRED). This development is said to have significant potential implications on the global cryptocurrency market.
Signals of a Potential Rate Cut
The rates and probabilities reported by FRED are an indication of the market’s anticipation of the Federal Reserve’s monetary policy. FedWatch, a tool from CME Group, offers these assessments. Recently, the probability of a rate cut in December rose to 97.7%, marking a significant surge from the previous figure.
This increase in the possibility of a rate cut is particularly striking considering the considerable skepticism from major financial experts regarding a December rate cut. This shift in sentiment could be a reflection of the market’s response to the current economic situations.
Related: The Impact of the Fed's Interest Rate Decision on Bitcoin: Could It Reach $170,000?
Implications for the Cryptocurrency Market
Although the Federal Reserve’s decisions are primarily aimed at managing the US economy, they can have far-reaching impacts on global financial markets, including cryptocurrencies. Lower interest rates can make holding traditional currencies less attractive, prompting investors to seek higher returns elsewhere, like the crypto market.
Moreover, lower rates can stimulate borrowing and spending, which could lead to inflation. Cryptocurrencies are often seen as a hedge against inflation due to their finite supply. Thus, a rate cut could potentially boost the appeal of cryptocurrencies as an investment.
Related: Bitcoin Rises Amid Federal Reserve Chairman's Interest Rate Remarks
A History of Rate Cuts and Crypto
Historically, rate cuts have been followed by significant movements in the crypto market. For instance, in July 2019, the Federal Reserve cut rates for the first time since the 2008 financial crisis. Following this, Bitcoin (BTC) experienced a 7% increase over the next two days.
While it’s difficult to establish a direct causal relationship between these events, it’s undeniable that rate cuts tend to bring about favorable conditions for the crypto market. Therefore, an impending rate cut could indicate prosperous times ahead for cryptocurrency investors.
Future Economic Predictions
Looking ahead, the looming possibility of a December rate cut has sparked numerous speculations. Some experts believe that the Federal Reserve may not follow through with a rate cut this time due to significant inflationary pressures and a robust labor market.
Related: Elon Musk Echoes the Demand to Abolish the Federal Reserve Bank
Others, however, maintain that a rate cut is inevitable given the current economic circumstances, most notably the COVID-19 pandemic and its continuing effects on the global economy. Whatever the outcome, the decision will undoubtedly have a considerable impact on financial markets, including cryptocurrencies.
Conclusion
The rising probability of a Federal Reserve rate cut in December, as indicated by FedWatch, could have significant implications for the cryptocurrency market. While it’s too early to draw definitive conclusions, investors are keeping a close eye on the Federal Reserve’s next move. Given the historical correlation between rate cuts and crypto market movements, the potential rate cut could signal a positive change for cryptocurrency investors.