Bitcoin Slips to $58K as Fed Faces Split Rate Cut Expectations as

It’s anticipated that the Federal Reserve will declare a reduction in interest rates on September 18, marking the beginning of what is known as an “easing period.” Historically, such periods have bolstered risky investments, like Bitcoin.

Financial traders find themselves in disagreement about the magnitude of the upcoming interest rate adjustment, which could lead to significant market turbulence following this week’s decision on rates. Currently, Fed funds futures indicate a 50% likelihood that the Federal Reserve will lower rates by 25 basis points (bps), bringing them within the 5%-5.25% range. Simultaneously, there is also a similar probability of a larger 50 bps rate cut, moving the rates to the 4.7%-5% range.

As a crypto investor, I’ve observed that Bitcoin’s robust surge from its recent low of $52,530 has temporarily plateaued due to the uncertainties surrounding interest rate cuts. The market-leading cryptocurrency has retreated from $60,660 to $58,700 at this very moment.

On occasion, a Fed meeting finds the market in peak ambiguity (neither confirming nor denying a quarter-point or half-point adjustment),” as stated by Marc Chandler, the chief market strategist at Bannockburn Global Forex and author of “Making Sense of the Dollar,” to CoinDesk via email.

Chandler believes that reducing interest rates by half a percentage point might not benefit risky investments, as it suggests the Federal Reserve is increasingly worried about the economy and possibly should have acted earlier in July.

Multiple financial experts have voiced concerns that a 0.5 percentage point reduction might suggest panic, potentially reducing interest in riskier investments such as cryptocurrencies. The likelihood of a 0.5 percentage point decrease increased significantly over the past week following an article by Nick Timiraos of The Wall Street Journal suggesting that the size of the rate cut is under discussion. Furthermore, some Federal Reserve policymakers have hinted at a larger adjustment, which has positively impacted risk investments.

As an analyst, I observed a shift in the market’s expectation towards a 50 bps rate cut, following what seems like a strategically placed statement by Federal officials. This statement seemingly reopened the discussion for a larger rate reduction than initially anticipated on Thursday. The market reacted to this suggestion and significantly increased the likelihood of not just one, but two half-point cuts, as well as a quarter-point cut in the three upcoming meetings this year. I recommend traders to also monitor the Fed’s summary of economic and interest rate projections for further insights.

Right now, it appears that the Federal Reserve funds rate could drop below 3% by the end of next year, according to market predictions. Interestingly, the current unemployment rate stands at 4.3% (or 4.2% in August), which seems to be the Fed’s long-term average level. Chandler jokingly asked if this might change.