On September 18, the US central bank (Federal Reserve) cut interest rates by 0.50%. Since then, mortgage rates in the United States have not fallen, but risen. How is that possible? And why is that dangerous for the Bitcoin price?
Free Financial Newsletter
Would you like to receive macroeconomic updates twice a week?
Then subscribe for free to my newsletter De Geldpers.
Roomy 3,000 bankers, fund managers, lawyers and investors went before you!
Each Monday in Thursday you will receive everything you need to know about the financial markets directly in your mailbox.
Dangerous situation for Bitcoin
It’s like this. Mortgage rates are usually linked to longer-term rates, such as 10-year government bonds, rather than short-term rates, which fall as a result of the US central bank’s rate cuts.
In the chart below from Tradingview we see how yields on 10-year bonds (relevant for mortgages) and 5-year bonds (relevant for companies) have risen since the interest rate cut.
How is that possible? Didn’t the US central bank cut interest rates? Then shouldn’t these interest rates fall?
We see these increases because longer-term interest rates are not determined solely by the policy of the US central bank. They are also determined by other factors, such as inflation expectations and longer-term economic growth.
If the outlook is uncertain and volatility increases, long-term interest rates may rise. Even if the US central bank lowers interest rates. This puts downward pressure on the economy and is usually less good news for risk assets such as Bitcoin.
What does this mean for the Bitcoin price?
It would be a good thing for Bitcoin if longer-term interest rates fell. That would remove the pressure on the economy and could, for example, revive the housing market.
It is still too early to draw conclusions, but if longer-term interest rates continue to rise, as we are seeing now, this could cause problems.
We saw the same thing happen in 2001 and 2007. At the time, the central bank also lowered interest rates, but longer-term interest rates did not fall along with it. And we all know how the story ended in the years mentioned: with major recessions for the United States.
In that respect, it is extremely important to keep an eye on these types of developments. Unfortunately, it is not that simple that all interest rates fall when the Federal Reserve lowers interest rates.
Free Financial Newsletter
Would you like to receive macroeconomic updates twice a week?
Then subscribe for free to my newsletter De Geldpers.
Roomy 3,000 bankers, fund managers, lawyers and investors went before you!
Each Monday in Thursday you will receive everything you need to know about the financial markets directly in your mailbox.
Source: https://newsbit.nl/gevaarlijke-situatie-voor-bitcoin-lange-rentes-stijgen-na-renteverlaging-federal-reserve/
