Fed isn’t Thinking About Cutting Rates This Year – What Does That Mean for Crypto?

Federal Reserve Governor Michelle W. Bowman recently announced that it is too early to consider cutting interest rates in 2024.

This statement comes at a time of heightened sensitivity in both traditional and crypto markets. The situation is further heightened by the anticipation of the release of key economic data later this week.

In his statement, Bowman highlighted that despite modest progress in managing inflation in the US, it remains elevated and faces various risks. This stance is consistent with the Federal Reserve’s cautious approach to monetary policy in an uncertain economic environment. She also stressed the importance of the Federal Reserve maintaining its independence and apolitical stance in decision-making processes.

These remarks precede the second revision of the US GDP data for the first quarter, which will be released on Thursday, 27 June. US consumer spending (PCE) data are due on Friday.

Bowman noted, “However, with average underlying consumer price inflation this year through May at 3.8%, I expect inflation to remain high for some time.” She also suggested a potential divergence from global monetary policy trends.

Bearish trend in the crypto market

The Federal Reserve’s monetary policy is putting pressure on market conditions, including cryptocurrencies. Higher interest rates typically strengthen the U.S. dollar, which can have the effect of lowering asset prices, including cryptocurrencies. Conversely, lower interest rates typically encourage asset prices to rise as investors seek higher returns in riskier markets.

Bowman’s assertion that interest rate cuts are unlikely until 2025 suggests that borrowing costs will remain relatively high, potentially hindering investment flows into the crypto market. This scenario could intensify the recent crypto meltdown as investors may prefer safer and more lucrative assets to volatile cryptocurrencies.

The crypto market has been turbulent lately, a.Bitcoin (BTC) recently fell below $59,000 amid significant sell-offs. Contributing factors include the recent BTC sales by the German government and the expected $9 billion settlement to investors from Mt. Gox, which further exacerbated market sentiment.

However, the lack of an expected interest rate cut has fuelled fears of continued market turmoil. As traditional financial conditions tighten, the appetite for riskier assets such as cryptocurrencies often diminishes.

Alexander Stefanov