According to the CME Fedwatch Tool, the chance that the American Federal Reserve will lower interest in September has risen to 92.2 percent. This strong rise feeds optimism in financial markets and therefore also on the cryptomarket. But what exactly would an interest reduction mean for the cryptomarket?
More and more support for interest reduction
What exactly is this interest? It is the most important interest rate in the United States. It determines the loan costs for banks, the interest on mortgages, loans and savings accounts for consumers, and indirectly the economy as a whole. This interest rate is determined by the US Central Bank, the Federal Reserve.
The expectation is that lower interest rates in investments in risky assets such as crypto make it more attractive, which can stimulate demand and possibly drive up prices.
Since December 2024, US policy interest rates have been stable between 4.25 percent and 4.5 percent. Nevertheless, the confidence that the central bank will soon be becoming a reduction. At the end of July the chance of such a step was still 41 percent, but now that has more than doubled to 92.2 percent.
Why will interest rate probably fall?
The cover is mainly due to recent macro-economic signals. Four large American banks, including Goldman Sachs, Citigroup, Wells Fargo and UBS, count on the first reduction in September. Goldman Sachs provides three steps with twenty -five basic points, spread over September, October and December.
“Earlier we thought that summer import rates and the recent rise in inflation expectations among households would make it politically difficult to lower faster. But early signals indicate that the effect of those rates is smaller than expected,” Goldman analysts write.
UBS is also pronounced and aims for a total of one hundred basic points of reduction before the end of 2025. In the meantime, unemployment rises, in July to four comma two percent, which increases the pressure on the FED. At the same time there is skepticism. Economist Peter Schiff warns:
“Many people now expect an interest rate reduction because earlier job reports have greatly overestimated job growth. But the inflation figures are also inaccurate. The labor market is weaker, but the inflation has more than the FED.”
Consequences for Bitcoin and other cryptos
The key question is what an interest reduction would have on crypto. As stated, an interest rate reduction lowers loan costs from banks, and indirectly this lower interest rate is also passed on to companies and consumers. This leads to a scenario in which investments in more risky assets such as Bitcoin (BTC) make more attractive. Historically, interest rates lead to price increases within the cryptomarkt.
In July, the absence of an expected reduction still caused falling rates. This direct relationship between the monetary policy and the cryptomarkt remains visible. Analysts within the crypto sector also take into account a possible revival.
“Like I said yesterday, I am very bullish on Q4. Important motives are possible interest rates by the FED, persistent economic strength and more clarity in regulations,” wrote crypto analyst Ted Pillows.
The combination of changing expectations, weakening labor market figures and renewed market sentiment, could thus pave the path for a stronger cryptomarkt towards the end of the year. But there is also a chance that the market will include these expectations in advance in the rates. It is therefore possible that price increases before the possible interest decision in September, both now and in the remainder of August, will be influenced by this expected decision.
Source: https://newsbit.nl/922-kans-op-renteverlaging-door-fed-in-september-wat-betekent-dit-voor-crypto/
