CoinWorld reported:
According to recent updates, the probability of the United States lowering interest rates in September has surpassed 70%, which is positive news for the cryptocurrency market. Concurrently, with the U.S. economy showing signs of weakness and potential recession, all eyes are on the Federal Reserve’s (Fed) potential for decisive rate cuts.
The latest employment data released by the U.S. Bureau of Labor Statistics on July 5th indicates a growth of 206,000 nonfarm payroll jobs in June, slightly above the market’s expected 190,000, but significantly lower than the previous 272,000. The unemployment rate for June rose to 4.1%, lower than the estimated and previous 4%, marking its highest level since November 2021. This suggests the robust U.S. job market is continuing to slow down, bolstering confidence in the U.S. fight against inflation.
Previous data such as CPI and PCE have shown a slowdown in inflation. Following the release of nonfarm payroll data last night, market expectations for the Fed to initiate rate cuts in September have once again increased. According to Fedwatch data, the probability of a rate cut in September has risen from 57.9% at the end of last month to the current 71.8%, while the likelihood of maintaining rates has decreased to 24.8%.
If the Fed does announce a rate cut in September or later meetings, it will undoubtedly be positive news for the cryptocurrency market. Historical data indicates that Fed rate cuts typically drive up prices of cryptocurrencies like Bitcoin. Lower interest rates boost sentiment in the risk asset markets, favoring capital flows towards cryptocurrencies as emerging assets. Moreover, a loose monetary environment would create favorable conditions for the financing and development of cryptocurrency projects. Additionally, rate cuts could potentially weaken the U.S. dollar, further boosting cryptocurrency prices, given their typical inverse relationship with the dollar.
However, uncertainty remains regarding the frequency and extent of future rate cuts by the Fed. Analysts from UBS suggest that the market may underestimate the magnitude of this round of rate cuts, forecasting that the Fed could cut rates significantly, possibly up to four times within the next 12 months. With the U.S. economy facing serious downward risks, including poor employment and inflation data, as well as declines in manufacturing PMI and other indicators, this could prompt the Fed to adopt a more aggressive and accommodative monetary policy to stimulate the economy.
Nevertheless, some analysts believe that while the U.S. economy is indeed under certain downward pressure, the Fed is unlikely to make substantial rate cuts and may instead opt for cautious policy adjustments. A drastic rate cut could exacerbate inflationary pressures and harm the stability of the U.S. financial system.
If the Fed only takes cautious steps towards rate cuts, the potential rebound in the cryptocurrency market may be somewhat limited. However, if the Fed does proceed with multiple rate cuts in the future, the cryptocurrency market could experience even stronger bullish trends. On the other hand, if the Fed implements more aggressive rate cuts leading to further depreciation of the U.S. dollar, this would undoubtedly enhance the value of cryptocurrencies relative to the dollar.
Currently, while market expectations for a Fed rate cut are rising again, the risks of economic recession in the United States are increasing due to sustained high inflation, weak demand resulting from rate hikes, and geopolitical uncertainties.
The June unemployment rate in the United States rose from 3.96% in May to 4.05% in June, marking a 0.22% increase since March. According to the Sahm rule, the three-month average is 0.42 percentage points higher than the previous 12-month minimum, nearing the threshold of 0.5 percentage points. The Sahm rule is an indicator of economic conditions, suggesting that when the three-month unemployment average exceeds the previous 12-month low by 0.5 percentage points or more, the economy is in recession.
In response to this situation, Fed Chairman Powell stated in his latest speech that the U.S. is in a “de-inflation” process and would be more confident in beginning to ease policies once inflation continues to decline towards 2%. He also unusually emphasized that the U.S. fiscal deficit issue should be addressed promptly.
Powell’s remarks send two signals: first, the Fed needs to see more evidence of inflation slowing down before taking rate-cutting actions; second, fiscal policy should complement monetary policy in tackling economic downturn pressures. This indicates that rate cuts are being planned, but early adjustments and decisions will be made cautiously based on the U.S. economic situation, and more decisive measures may be taken when necessary to “turn the tide.”
In conclusion, despite downward pressures on the U.S. economy, there are uncertainties regarding the extent of future rate cuts by the Fed. If the Fed maintains cautious rate cuts after September, the rebound potential of the cryptocurrency market may be constrained. It is crucial to closely monitor the Fed’s policy directions and actual performance of the U.S. economy in determining the medium to long-term trends of the cryptocurrency market.
