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⚡Powell Hints at September Rate Cut✂️

Croxroad

25 Aug 2024 — 5 min read

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🐚 September Rate Cut Looms

After much anticipation, the U.S. appears poised for its first rate cut in years as Federal Reserve Chair Jerome Powell confirmed that the “time has come” for easing monetary policy. Speaking at the Kansas City Fed’s Jackson Hole Symposium, Powell emphasised his growing confidence that inflation is on a sustainable path back to 2%, citing a cooling labour market. He stressed that the Fed does not seek further declines in employment conditions and noted that future rate cuts will be data-driven, based on evolving economic conditions. While markets expected Powell’s dovish tone, his remarks still spurred immediate reactions, with Bitcoin (BTC) climbing more than 1% to $61,900, alongside gains in traditional markets.

The broader financial markets echoed Bitcoin's positive response, with the Nasdaq rising 1.7%, the S&P 500 gaining 1.2%, and gold increasing by 1%. Simultaneously, the 10-year Treasury yield fell five basis points to 3.80%, and the U.S. dollar index dropped by 0.6%. This shift comes after a series of aggressive rate hikes that saw the Fed funds rate climb to 5.25%-5.50% in 2023, as part of the central bank’s efforts to curb persistent inflation. With clearer signs that inflation is approaching the Fed’s 2% target, speculation now turns to the magnitude of the September rate cut, with market odds leaning toward a 25 basis point reduction. However, the probability of a 50 basis point cut has risen to 32.5%, reflecting growing uncertainty ahead of key economic reports, including employment and inflation data for August.

According to Zach Pandl, head of research at Grayscale Investments, lower real interest rates could weaken the U.S. dollar, thereby supporting assets like gold and Bitcoin. He believes that a combination of Fed rate cuts, improving sentiment around U.S. crypto regulations, and inflows into crypto ETFs could drive Bitcoin back to its all-time highs in the coming months. As the countdown to the Fed’s mid-September decision begins, market participants are closely watching incoming data, which will likely be pivotal in determining whether the rate cut will be a moderate 25 basis points or a more aggressive 50 basis points.

🏗️ Crypto Market Rebounds

In the past 24 hours, Bitcoin has surged over 5% following Federal Reserve Chair Jerome Powell's indication that a rate cut is imminent. Powell’s keynote at the Kansas City Fed Jackson Hole Symposium highlighted that the labour market has cooled, and conditions are less restrictive than before the pandemic, signalling that "the time has come for policy to adjust." Historically, lower interest rates have been favourable for Bitcoin and the broader cryptocurrency market, as seen during previous bull runs when rates were low. This trend is echoed by Bitcoin's recent performance, with the cryptocurrency surpassing $63,000 for the first time since early August, amid a broader market rally.

The general crypto market mirrored Bitcoin’s gains, with several top cryptocurrencies showing substantial increases. Ethereum (ETH) rose over 5%, while Layer 1 altcoins such as Solana (SOL), Avalanche (AVAX), and Near Protocol (NEAR) posted gains ranging from 4% to 20%. Artificial Intelligence tokens and meme coins also experienced notable surges, with tokens like Artificial Super Intelligence (ASI) and Dogecoin (DOGE) rising by 19% and 7%, respectively. These widespread gains contributed to an overall increase in the crypto market capitalization by over 3% on Friday.

Additionally, the rising stablecoin market cap, which recently reached a record high of $165 billion, suggests stronger buying pressure and a potential inflow of new capital into the crypto market. This aligns with historical patterns where increased stablecoin capitalization often correlates with higher Bitcoin and broader crypto prices. As the Fed is expected to cut rates in the coming weeks, the rally in the crypto market might continue, supported by these positive indicators and the influx of capital as evidenced by the stablecoin market’s growth.

🗞️ New Series

In recent years, the debate between gold and Bitcoin as investment assets has gained renewed relevance, particularly in the face of economic uncertainty. Analysts and amateur economists frequently highlight the threat of impending recessions, following the Great Recession and the brief but impactful COVID-19 recession. Traditionally, investors have turned to precious metals like gold as a reliable hedge against stock market downturns. Gold’s enduring role as a safeguard during economic turbulence has been well established. However, Bitcoin, with its growing recognition and evolving use cases, is emerging as a compelling alternative. As we delve into this series, we'll explore how Bitcoin stacks up against gold, examining its potential to challenge traditional capital preservation methods and its role in modern investment strategies.

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