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50 Basis Points Rate Cut Could Spook The Market
The US Federal Reserve (Fed) is poised to initiate a 50 basis points (bps) interest rate cut this month, a move that could potentially affect Bitcoin (BTC) prices, according to 10x Research. After a series of interest rate hikes starting in March 2022 aimed at curbing inflation caused by COVID-related supply chain issues and excessive money printing, the Fed is now pivoting towards rate cuts to stimulate economic growth.
Data released by the Bureau of Labor Statistics on September 6, 2024, indicated a slight decrease in unemployment but fewer job creations than expected. This scenario has prompted the Fed to begin its rate-cutting cycle, as it aims to prevent high interest rates from causing irreversible damage to businesses.
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According to 10x Research, a 50 bps rate cut scheduled for September 18, 2024, might signal economic distress. This move could inadvertently suggest that the Fed believes it is too late to manage the impending economic downturn, leading investors to shun risk-on assets like stocks and cryptocurrencies.
For those unfamiliar, one basis point is 1/100th of a percentage point. Central banks typically adjust interest rates by 25 bps or multiples thereof, depending on the situation’s urgency. In 2022, the Fed raised interest rates by 50 or even 75 bps multiple times to combat inflation.
Markus Thielen, founder of 10x Research, shared a note with clients stating:
“While a 50 basis point cut by the Fed might signal deeper concerns to the markets, the Fed’s primary focus will be mitigating economic risks rather than managing market reactions.”
He added:
“The probability of a 50 basis point cut is only 29%, contrasting our view and the prevailing consensus. The chorus is growing louder that the Fed is behind the curve, having missed signs of labor market weakness after being caught off guard in July.”
Critical For The Fed To Walk The Thin Line
Macro trader Craig Shapiro echoed 10x Research’s findings in a post on X, emphasizing that despite market pressure for aggressive rate cuts, the Fed should avoid starting with a 50 bps reduction. Shapiro highlighted that markets are accustomed to liquidity, and in its absence, they tend to “revolt, sell off, and find the lower put strike level,” which then forces the Fed to accelerate rate cuts and provide more liquidity.
Shapiro asserts that risk assets will continue to decline in value until the Fed capitulates and meets market demands for more liquidity.
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On the other hand, some analysts believe that Bitcoin might experience another rally around the beginning of October 2024. At the time of writing, BTC is trading at $55,296, with a total market cap exceeding $1.09 trillion, according to CoinGecko.
Bitcoin’s current price of $55,296 on the daily chart indicates potential market movements that could be influenced by the Fed’s upcoming decisions.
Featured Image from Unsplash.com, Chart from TradingView.com
