Markets
Fed Decision Looms After US Govt Moves Bitcoin: Here’s What to Expect
Key points
- The BOJ, Fed and BOE will make crucial rate decisions this week.
- Global markets are anticipating the impact of these central bank policies.
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The U.S. Federal Reserve will announce its interest rate decision on Wednesday afternoon, around 2:00 p.m. EDT.
As it stands, the Fed is not expected to announce a rate cut right now. In September, however, the CME FedWatch Tool forecasts a 4.1% probability of loosening rates, as implied by 30-day futures prices. This probability is configured along with a 12-13.8% probability of cutting basis points by 50 basis points, instead of the usual 25.
This news comes with the recent drop in consumer price index (CPI) in the United States last June, which sent the cryptocurrency market soaring after showing moderate inflation data at 3.3% on an annual basis. Betting on Polymarket for the July 2024 decision they show “No change” with a probability of 96%.
However, whether the Federal Open Market Committee (FOMC) ultimately decides to raise or cut rates, it is still expected to be a positive outcome for cryptocurrencies. A rate hike would mean a slower but steady improvement. A rate cut, on the other hand, would be bullish, as lower interest rates typically reduce the cost of borrowing, encouraging more investment and liquidity in riskier assets like cryptocurrencies. Lower rates also tend to weaken fiat currencies, potentially prompting investors to seek out alternative stores of value like cryptocurrencies.
As of this writing, Bitcoin is trading at $65,600 and has continued to swing over the past month, while stocks remain resilient. But with the possibility of September rate cuts, all directions point to a likely favorable outcome for cryptocurrencies.
Divergent decisions: United States, Japan and United Kingdom
The Bank of Japan, the Federal Reserve and the Bank of England will announce interest rate decisions this week, with analysts expecting divergent results from each central bank.
The Bank of Japan (BOJ) will start on Wednesday, with analysts divided over whether it will raise rates from the current 0%-0.1% range or signal an imminent hike. Japan’s inflation has remained above the bank’s 2% target, while the yen hovers near multi-decade lows against the U.S. dollar. The Wall Street Journal reported that the BOJ believes that a tighter monetary policy could stimulate sluggish consumption by strengthening the yen and easing import prices.
The Federal Reserve is expected to hold rates steady at its meeting on Wednesday, but markets are expecting a clear signal of a rate cut at its next meeting in September. CME FedWatch data shows a 100% probability of a September rate cut, with a 12% chance of a 50 basis point cut instead of the typical 25 basis points.
The Bank of England (BOE) faces a closely watched decision on Thursday, with economists and markets roughly split 50/50 on whether it will cut rates for the first time in several years. Even if the BOE does ease, it is likely to signal a cautious approach to future cuts.
These central bank decisions come amid a broader context of monetary easing among major economies. The European Central Bank and the Bank of Canada have already implemented rate cuts in recent months, signaling a shift from the multi-year tightening cycle.
For the cryptocurrency market, especially Bitcoin, the impact of these decisions could be limited in the short term, barring any significant surprises. However, the long-term trend toward looser monetary policy could potentially benefit risk assets like Bitcoin. This 56% rally since the beginning of the year, while largely attributed to demand for US-based spot ETFs, could also reflect market anticipation of this easing cycle.
Government agency moves Bitcoin just before FOMC decision
The Federal Reserve’s next interest rate decision comes just days after a Justice Department entity $2 billion worth of Bitcoin movedpresent an intriguing juxtaposition in the financial and economic spheres. While the Fed is expected to hold rates steady and signal future cuts, potentially boosting risk assets like Bitcoin, the large-scale transfer of seized crypto assets by the DOJ introduces an element of uncertainty into the market.
The timing of the DOJ’s Bitcoin move, just before the Fed’s announcement, raises questions about possible coordination or coincidence. If the Fed’s decision aligns with market expectations of a dovish outlook, it could offset any negative pressure on Bitcoin’s price from fears of government sell-offs.
Conversely, if the Fed surprises with a more hawkish stance, it could exacerbate any market jitters stemming from DOJ actions. This situation highlights how government actions in a variety of areas, from monetary policy to law enforcement, can have interconnected effects on the cryptocurrency market.
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