Cryptocurrency market feels pressure as potential 50 basis point Fed rate cut looms.
Cryptocurrency markets are reacting to a possible bigger-than-expected rate cut by the Fed.
Posted on September 16, 2024 at 2:26 p.m. EST.
Bitcoin and other cryptocurrencies are being hit as the market braces for a potential larger-than-expected rate cut from the Federal Reserve. In the past 24 hours, bitcoin has fallen 3% and is currently trading at $58,000, while ether is down 3.5% at $2,300. The decline comes as the probability of a 50-basis-point rate cut by the Fed on Wednesday has risen to 61%, up from just 14% last Wednesday, based on the federal funds rate, according to the CME. dataAt the same time, the probability of a more modest 25 basis point cut is 39%.
The sharp rise in the odds of a more aggressive rate cut has rattled the cryptocurrency market, reflecting growing concerns that the economy could be in worse shape than expected. The possibility of a 50 basis point cut, which would be the first significant such move since 2020, has sparked uncertainty and selling pressure among investors.
Learn more: What do slowing inflation and rate cuts mean for cryptocurrency and Bitcoin prices?
Adding to the tension, three Democratic senators, including Elizabeth Warren (D-Mass.), are urging The Fed announced a 75 basis point rate cut, warning that a more cautious approach could push the economy toward a recession. In a letter to Fed Chairman Jerome Powell on Monday, the senators stressed that with inflation trending lower and signs of a slowing labor market, the Fed should act decisively to mitigate potential risks. They argue that cutting rates early is essential to avoid a potential economic crisis, writing that “employment numbers are slowly adjusting, so the Fed should accelerate rate cuts to avoid sliding toward a potential crisis.”
With a touch of sarcasm, Marc Andreessen, general partner of venture capital firm a16z, published on X: “I strongly support Senator Warren’s call for an immediate 75 basis point rate cut and a corresponding surge in stock prices.”
Market experts believe that a 50 basis point cut is the best course of action for the Fed to take. Bill Dudley, former president of the Federal Reserve Bank of New York, argued In a Bloomberg column published Monday, Dudley said a 50 basis point cut would be the most sensible because it would help the Fed align its rate policy with economic projections and avoid sending mixed signals to the market. Dudley believes that given current economic conditions, a larger cut is needed to correct the mismatch between the Fed’s policy and the neutral rate.
Greg Ip, chief economics commentator for the Wall Street Journal, also said: supports Ip said it was a 50 basis point cut, but for slightly different reasons. He stressed that with inflation already slowing and the labor market weakening, the Fed should act decisively rather than wait for further signs of recession. Ip noted that delaying action could be riskier, leading to a situation where the Fed would be forced to make even deeper cuts later, which might be too late to be effective.
With the final decision expected on Wednesday, the financial world is closely watching the developments. Whether the Fed opts for a 25 or 50 basis point rate cut, the decision is likely to have a significant impact on the cryptocurrency market and could indicate how close the US economy is to a recession.
Learn more: Why You May Have to Wait a Little Longer for a Cryptocurrency Bull Market
