Main takeout:
On May 7, the US Federal Reserve Bank Open Market Committee (FOMC) interest rate decision will be a decisive moment for risky assets, including cryptocurrency. The agreement points out that there is no change in interest rates, but BTC (Bitcoin) and Altcoins can benefit if the US Treasury needs to inject liquidity and prevent the economic downturn.
More convenient monetary policies can stimulate their activities, but the Federal Reserve Bank (Fed) is competing with the US dollar weakness. Some analysts argue that the US interest rate reduction may not stimulate growth as the risk of economic downturn continues, and it can potentially create an ideal environment for alternative hedge assets such as cryptocurrency.
Economist and investor Jim Paulsen is a period of growth when Fed Funds exceeds “neutral” interest rates (subtracted from the annual core personal consumption expenditure index), and the economy has shifted to a recession or “growth recession”, and the unemployment rate is rising and the consumer demand is weak. Since 1971, similar patterns support this analysis.
According to Paulsen, the Fed will need to lower interest rates. Moreover, Jerome Powell, chairman of the central bank, is under much pressure from US President Donald Trump.
Why the Fed can start relaxation
Concerns over overheated markets remain because US consumer inflation exceeds 2% goal and unemployment in April does not suggest signs of economic weakness.
According to the CME Fedwatch tool, the market expectations reflected in the financial return futures fell significantly from 90%on April 29, with a 76%chance of interest rate rate of less than 4.0%by September 17.
Traders are not convinced that the Fed will alleviate monetary policy. This may seem to be weak at risk assets at first, but the Treasury can stimulate liquidity into the market to support government spending.
Regardless of FOMC’s decision, some analysts pointed out that on May 5, the Fed’s recent $ 2 billion in financial bond purchases for the signal on May 5. Additional liquidity has historically optimistic about cryptocurrency. In particular, the US dollar is inferior to other major global currencies. As a result, investors are looking for alternative fences rather than holding cash.
relevant: Bitcoin Price finally 1,550% that the ‘BTC RISK-OFF’ metrics fell low
The US dollar index (DXY) has decreased to less than 100 for the first time since July 2023, as investors retreated from the US market under economic uncertainty. Meanwhile, gold has risen more than 12% over the last 30 days, and is currently dealing with 2% lower than $ 3,500. Reducing confidence in the US Treasury’s debt financing ability prefers lack of assets such as Bitcoin.
The probability of multiple speed cuts has decreased, but this scenario can still be advantageous for cryptocurrency. If the Fed puts pressure to extend the balance, it can ultimately erode the value of a fixed income investment factor that supports cryptocurrency.
This article is for general information purposes and should not be considered legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.