Tomorrow, the Fed authorities will make a decision on interest rates. There are many indications that they will remain at current levels. However, the breakthrough is to come in September.
Will the Fed start cutting interest rates?
The next Fed meeting is set for July 31. There is increasing talk that the central bank will start cutting interest rates. But it probably won’t be tomorrow.
According to the CME Group’s Fed Watch Tool, the probability that interest rates will remain at current levels is about 96%. The chance of the first cut has been estimated at exactly 4.1%. Of course, these estimates change almost every moment, but it is doubtful that such a difference would lead to any chart revolution on a daily scale.
The CME Group bar chart is not something that dictates Fed policy, of course. We can assume the central bank will wait until September to make its first cut.
Let’s just move on to the next Fed meeting on September 18.
When we look at the Fed Watch Tool data, we see something surprising. The risk that rates will remain untouched is priced at… 0%. The chance of a 25 bp cut is close to 90%, a 50 bp cut – 10.1%. The study even includes an even bigger cut – 0.75 bp (however, the chance is only 0.3%).
The former vice chairman of the Federal Reserve, Roger Ferguson, also injected hope into the hearts of investors. In an interview with CNBC, he said that the September cut would kick off a long cycle of interest rate cuts.
Is this why the bitcoin price is rising?
It is precisely in the expected change in Fed policy that we should – at least in my opinion – see the recovery of the bitcoin rate. The market is simply starting to price in the future impact of officials’ decisions on digital assets. The beginning of a series of reductions means a “promotion” for money. Dollars will become “cheaper” and more accessible (lower interest rates). This, in turn, will drive demand for stocks, cryptocurrencies and precious metals. It will weaken the dollar itself, which will become a hot potato that many will want to exchange for harder assets.
The text does not constitute investment advice.