In its recent gathering, the Federal Reserve chose to maintain current interest rates, though market predictions suggest at least four potential cuts are on the horizon. During last Friday’s closed-door discussions, no immediate actions were decided, yet various indicators suggest that a response is necessary. What does this imply for the future of cryptocurrencies?
Is the Fed Likely to Change Course?
Recent declines in stock values coincide with fluctuations in interest rates, and cryptocurrencies are feeling the impact as well. Increased costs, falling sales, and challenges in trade have instilled fear in businesses, contributing to stock market dips. Moreover, the surge in government bond sell-offs this week raises alarm, particularly as these bonds are traditionally considered safe investments.
The Fed operates independently, and Chair Jerome Powell is unaligned with any political figures, including Trump. There is a strong desire to avoid the perception that political pressures could sway the Fed’s decisions, especially if it appears to serve Trump’s interests. Recently, Trump expressed his frustration, urging Powell to lower rates without political influence.
How Will the Fed Affect Cryptocurrencies?
Many expect a surge in cryptocurrencies if the Fed announces interest rate reductions. Some speculate that Trump might reconsider tariffs, but this scenario seems unlikely to materialize soon. Presently, there are no indicators of a stock market collapse similar to what occurred in 2008.
Currently, the market has not experienced a drop exceeding 50%, nor have U.S. Treasury yields reached alarming levels. The situation, while stable, does not eliminate the possibility of approaching a crisis.
What are the implications? The Fed’s cautious approach to intervention remains evident, as they prefer to wait and analyze before taking action. Although the risks of delaying action concern them, they believe it is a lesser risk than making premature decisions.
Should conditions worsen, the short-term outlook for cryptocurrencies and risk assets appears bleak unless unexpected developments arise. If the Fed decides to act, it is unlikely to announce a drastic rate cut immediately. Current discussions suggest a potential shift of the first cut from May to June, targeting a modest reduction of 25 basis points.
In the event of necessary intervention, the Fed may initiate temporary bond purchases to stabilize market volatility, while being careful not to imply a broader monetary expansion strategy.
