Cryptocurrency investors recently experienced a shock drop in prices, although the sell-off did not intensify. At the time of writing, Federal Reserve member Barkin is making statements that could contribute to the decline of cryptocurrencies. As we enter 2024, the Fed continues to suggest that interest rate hikes are still on the table.
Rumors about Matrixport aside, there has been a long-standing appetite for overbuying in cryptocurrencies, fueling concerns about a correction. For now, the $40,750 level is acting as a barrier to further declines. However, comments by Fed member Barkin, if accepted as the general tone, could facilitate a continued downturn. While most expect a rate cut of 75-150 basis points this year, Barkin mentioned that more hikes could be implemented, indicating they are under consideration.
Barkin also emphasized that a ‘soft landing’ is not a guaranteed scenario and could reverse. He detailed that inflation and economic outlook would determine the path of interest rates. The economy could continue to perform well while the central bank makes real progress on inflation. Lower long-term interest rates might revive housing demand. While data may suggest a soft landing is developing, it is not inevitable, and potential for additional rate hikes exists. This possibility remains on the table.
Barkin highlighted risks to a soft landing, including delayed effects of high interest rates on credit, external shocks, persistent high service inflation, and strong demand. These factors could influence the Fed’s decision-making process regarding further interest rate increases.
The market will witness the year’s first interest rate decision on January 31, with the prevailing opinion leaning towards maintaining the current rates. Optimistic views suggest the first rate cut could be announced as early as the March meeting, as depicted in market expectations.