Investment banking giant Goldman Sachs has delivered the anticipated good news for risky assets such as Bitcoin (BTC) and altcoins. According to Reuters, Goldman Sachs had initially forecasted that the US Federal Reserve (Fed) would make its first interest rate cut in the fourth quarter of 2024. However, it has now revised this prediction, announcing that the rate cut could happen as soon as the third quarter. This implies that the Fed may lower interest rates much earlier than previously expected.
This revision in Goldman Sachs’ interest rate forecast is extremely significant for risky assets such as Bitcoin and altcoins. The change in prediction follows a series of factors including increased expectations for the approval of a spot ETF in the US, the rapidly approaching Bitcoin block reward halving, and an acceleration in the decline of the yield on 10-year US Treasury bonds, which encourages risk-taking.
The current base interest rate of the Fed stands between 5.25% and 5.5%, while Fed funds futures indicate that rates are expected to fall to a range starting at 4% by the end of next year.
When interest rates drop, borrowing becomes cheaper, stimulating risk-taking in the economy and financial markets, including cryptocurrencies. Conversely, during 2022 when interest rates rose rapidly, there were sharp declines in risky assets.
As a reminder, the Fed began a tightening cycle in March 2022 to control rising inflation. The central bank raised the interest rate from a low level of 0 to 0.25% up to between 5.25% and 5.5%. The last interest rate hike in the US was made in July. The rapid increase in borrowing costs in the country created heavy pressure on risky assets, including Bitcoin and altcoins, and triggered serious price drops. Following the destruction and collapses, heavyweights of the finance world have begun to predict that this cycle may be coming to an end.