Powell sings "dove," may cut interest rates three times next year, Bitcoin briefly breaks through $43,000
Powell has released the clearest signal to date that the tightening of monetary policy has ended, and interest rate cuts are "now on the table."Written by: Mary Liu, Bitpush News
On December 13, Eastern Time, the Federal Reserve maintained the current interest rate range of 5.25%-5.50% as expected, marking the fourth pause in rate hikes this year after holding rates steady in November, September, and June.
Even more surprisingly, the Federal Reserve issued its clearest signal yet, predicting a series of rate cuts next year, with the cuts exceeding economists' expectations. The Fed currently expects the federal funds rate to be only 4.6% by the end of 2024, down from the previous expectation of 5.1% three months ago, indicating three rate cuts of 0.25 percentage points next year.
Following this announcement, Bitcoin rebounded to over $43,000, with a 24-hour increase of more than 4%, although it has not yet returned to the annual high of over $44,300 seen in early December. The global cryptocurrency market capitalization currently stands at $1.65 trillion, growing by 3.6% in the past 24 hours. Altcoins such as Avalanche (AVAX), Cardano (ADA), and Injective (INJ) have seen increases close to 10%.
In addition to the interest rate announcement, the Federal Reserve also released its quarterly updated economic forecasts. The central bank now expects the core inflation rate for 2023 to be 3.2%, down from the previous expectation of 3.7% three months ago. The final growth rate for 2024 is now projected to be 2.4%, down from 2.6% previously. The actual GDP growth rate for 2024 has been revised down from 1.5% to 1.4%.
Powell's Dovish Shift
Federal Reserve Chairman Jerome Powell's remarks at the press conference shocked economists as he sent the clearest signal yet that the tightening of monetary policy has ended and that rate cuts "are now on the table." Industry insiders believe this press conference was more dovish than expected.
Powell stated, "We see that strong growth seems to be slowing. We see the labor market is coming back into balance, and we see that inflation has made real progress. These are all things we have been hoping to see."
JPMorgan Chase economist Michael Feroli remarked that it felt like "12 doves hopping."
Asset management firm NewEdge Wealth stated on the X platform, "Just 12 days ago, Powell delayed speculation about rate cuts, and now he reveals that the FOMC is openly discussing future easing policies. Therefore, today's meeting marks a real pivot for the Fed, which has significant implications for financial conditions."
Fed Decision and the Crypto Market
The Federal Reserve's interest rate decisions directly impact the cryptocurrency market, as they can influence investor behavior. When the Fed raises rates, traditional asset classes like bonds and other fixed-income assets become more attractive to investors due to stable returns. In turn, investors shift funds away from volatile assets like cryptocurrencies, leading to reduced demand and potentially causing price adjustments or declines.
Once interest rates decrease, the market's risk appetite strengthens, and funds begin to flow back into stocks and the cryptocurrency market from less volatile asset classes.
Due to rising inflation, the Fed began tightening rates in March 2022, raising rates from a low of 0% to 0.25%, with the most recent hike occurring in July.
U.S. Treasury yields, particularly on securities with maturities of 2 to 7 years, have fallen by more than 15 basis points. These changes indicate that monetary policy may become more accommodative, suggesting an environment favorable for the growth of risk assets like Bitcoin.
Current interest rate futures indicate a greater than 60% chance of a rate cut by March 2024. This probability has risen significantly, with expectations for a rate cut in May soaring to 90%.
Bitfinex analysts stated, "Historically, maintaining or lowering interest rates tends to create a sense of optimism among investors, as it implies more disposable income and potentially larger investments across various asset classes." "This effect is not limited to traditional markets but extends to new asset classes like cryptocurrencies."
ETF and Halving Catalysts
With the expectation of rate cuts in 2024, ETF approvals, and the upcoming Bitcoin halving event in April, the potential momentum for Bitcoin price increases appears very strong.
Bitpush previously reported that several major financial firms, including BlackRock (BLK.N), have submitted applications to the SEC for spot Bitcoin ETFs, which, if approved, could attract massive institutional funds into cryptocurrencies. U.S. crypto company NYDIG estimates that the demand for spot Bitcoin ETFs is around $30 billion. Their calculations compared the sizes of gold and Bitcoin ETFs (which are $210 billion and $28.8 billion, respectively) and adjusted for their relative volatility.
The next Bitcoin "halving" is expected to occur in April next year. This process aims to slow the issuance rate of Bitcoin, which has a supply cap of 21 million, of which 19 million have already been minted.
CoinShares analyst Butterfill noted that Bitcoin has rebounded in the past three halvings, the most recent of which was in 2020. However, given the different market conditions, it remains unclear whether this time will trigger another rebound. He stated, "If we combine this with the high demand for U.S. ETFs and reduced new supply, it could have an impact, but I would remain cautiously optimistic."
