Kevin Warsh, the proposed new chairman of the US central bank, could surprise markets. According to top economist Robin Brooks, Warsh is ready to aggressively cut interest rates.
Not just a little bit, but no less than 100 basis points. That is a lot more than investors now expect and it could have major consequences for the Bitcoin price.
Big interest rate cut coming?
While many investors expect Warsh to take strict action, economist Robin Brooks sees the opposite happening. He predicts that interest rates will be lowered in four steps, starting in June. This would reduce the official interest rate from 3.75 to 2.75 percent, before the American elections in November.
“Many people think Warsh is strict and conservative. But he also knows that Trump will drop him just as easily as Powell if he doesn’t deliver,” says Brooks. “He wants to stimulate the economy. And that means relaxing.”
AI as an excuse to lower interest rates
Warsh previously indicated that he sees the rise of artificial intelligence as an opportunity. According to him, AI ensures higher productivity without increasing inflation. This gives the Fed room to lower interest rates without fear of price increases.
“If productivity grows one additional percentage point per year, living standards will double within one generation,” Warsh wrote in the Wall Street Journal in November.
Brooks thinks that Warsh will use this as an argument to reassure the markets and to be able to act quickly.
Bitcoin is falling, but that could turn around quickly
Markets have been unsettled since the first rumors of Warsh’s appointment surfaced. Bitcoin (BTC) fell from $84,500 to $75,000. Gold and silver also took a big hit. Investors fear that a new hawk will take the helm at the Fed, someone who wants to keep interest rates high.
However, that picture could quickly change if Warsh indeed opts for rapid interest rate cuts. Lower interest rates often mean a weaker dollar, and Bitcoin usually benefits from this.
What does this mean for crypto?
If Brooks is right, we can expect a new flow of capital into risky investments such as crypto. That could trigger a new bull run, especially if interest rate cuts happen faster than the market currently expects.
The coming months will therefore revolve around one question: will Warsh stick to his old image, or will he choose a new course? For Bitcoin investors, that is the difference between remaining cautious… or getting in now.
Source: https://newsbit.nl/econoom-trumps-nieuwe-fed-man-wil-snoeihard-rente-verlagen-goed-voor-bitcoin/
