Goldman Sachs Foresees Possible Fed Rate Cuts; Crypto Market Could See Surge
Summary:
Goldman Sachs, the world's second-largest investment bank, predicts the US Federal Reserve may cut interest rates twice in the next two years, starting as early as the third quarter of 2024. Concurrently, the Bitcoin halving event coming up in April could provide a significant catalyst for the crypto market. This prediction relates to the strong correlation between interest rates and investors' risk attitudes. Goldman Sachs initially predicted the first rate cut by December 2024. However, due to a cooling inflation, this prediction is now brought forward to the third quarter of 2024. Expected rate cuts and Bitcoin's halving could potentially create an ideal context for a surge in the crypto market.
In the next two years, Goldman Sachs, the world's second biggest investment bank, foresees the possibility of the United States Federal Reserve slashing interest rates twice, starting possibly in the third quarter of 2024. This prediction comes at a key time for the crypto market, with the widely anticipated Bitcoin halving event slated to take place in April, potentially creating a powerful catalyst. The relationship between interest rates and the risk appetite of investors is strong. Earlier forecasts by Goldman Sachs anticipated the first rate cut by the Fed to take place in December 2024; however, recent developments suggest it could occur in the third quarter of 2024, as inflation cools down, according to a Reuters report on December 11. The bank expects these two cuts by the Fed to lower interest rates to 4.875% by the end of 2024, as opposed to its earlier forecast of 5.13%. On December 8, data showed the U.S. labor market outperforming expectations after the unemployment rate fell to 3.7% in the U.S. Labor Department’s monthly jobs report, down from 3.9% in October. Traders cited in a Reuters report maintain that a stronger performing labor market will not hold back the Fed from cutting interest rates, anticipating the first cut to be made in the first quarter of 2023 – two quarters ahead of Goldman Sachs’ predictions for the third quarter. A pertinent excerpt from Goldman Sachs' note concerning the Fed's interest rate cuts states: “Although robust growth and labor market figures do not suggest imminent insurance cuts...the recent positive news about inflation might accelerate some normalization cuts.” The federal funds rate, decided by the Federal Open Markets Committee, serves as a guiding interest rate for U.S. banks' lending practices, established within a specific lower and upper bound. Currently, it varies between 5.25% and 5.50%. When the Fed decreases its interest rates, borrowing becomes less costly, triggering an upswing in risk-taking amongst the economy’s traders, including those dealing in cryptocurrencies. Interest rate hikes are often employed to curb inflation and deflate the purchasing power of traditional currencies, acting as a deterrent to investment in the crypto market. The predicted cuts in the Federal Reserve's rates, coupled with the forthcoming Bitcoin halving in April, could provide an ideal post-halving catalyst. When interest rates are lowered, the markets become more accepting of risk, and capital starts to flow back into the equity and crypto markets from less volatile asset types.
Published At
12/11/2023 4:34:19 PM
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