Experts explain why the Fed cuts are not coming – should Bitcoin loyalists stick to it?
Despite favorable core personal consumption expenditure (PCE) data in the United States, Bitcoin and the broader crypto market have not found relief. According to Coingecko data, on Friday, May 30, the market value of cryptocurrencies fell by nearly 5%.
But an industry expert explains why the U.S. macroeconomic landscape may not get better in the cryptocurrency and other risky asset markets in the coming months. This interesting prediction suggests that the future of Bitcoin prices and other cryptocurrency markets seems a bit uncertain.
Why the Fed has been reduced for a short time
Jim Bianco explains in a new post on social media platform X why he expects the U.S. Federal Reserve won’t lower interest rates at the next three Federal Open Market Committees (FOMC) meetings. According to investment research experts, the reason behind the decrease in the likelihood of lowering is the rebound of the U.S. economy.
Bianco mentioned that it is reckless to lower interest rates as the economy recovers strongly and lower prices and prices rise. Macroeconomic researchers say the slowdown in imports has tested positive for the U.S. GDP due to increased trade tariffs.
Bianco further explained:
Imports are “lost GDP”. It is a product made outside the United States. Therefore, peak imports that cause larger trade deficits will hinder GDP. This is the biggest reason for negative GDP in the first quarter (revised yesterday at -0.3% to -0.2%). The Liberation Day greatly slowed down imports and the trade deficit reversed. This is enhancing Q2 GDP. It is now estimated to be 3.8%, and it could be as high as another slow import month in May.
Source: @biancoresearch
Financial market experts also highlighted the U.S. tariff-driven inflation rate and how it could drive a 2.3% year-on-year CPI increase. Ultimately, Bianco believes that the possibility of lowering the Fed rate is extremely low, because the opposite is a reckless move.
How does this affect the Bitcoin market?
Generally, lower interest rates mean that riskier assets such as cryptocurrencies and stocks are more attractive investment options as traditional assets have reduced yields, such as fiscal bonds. As mentioned in the past few years, whenever the Fed lowers interest rates, the Bitcoin market tends to rallies.
Furthermore, a reduction in the Fed’s reduction usually results in a weaker dollar, which may mean higher value for assets priced in U.S. currency. Therefore, some investors use cryptocurrencies like Bitcoin to hedge against the depreciation of fiat currencies.
Related Reading: Fresh Capital Continuously Fills in Bitcoin – Matching the Bull Market Inflow in 2021
Essentially, the U.S. Federal Reserve’s decline is usually bullish on Bitcoin and cryptocurrencies as they push investors to alternative markets for higher returns. However, it is important to consider the state of the economic environment before decreasing the rate, as a positive macroeconomic landscape is often more beneficial to riskier assets.
It is also worth mentioning that the lack of reductions in the next three months may not necessarily have the opposite bearish effect on the Bitcoin market.
The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured images from Istock, charts for TradingView
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