The chief economist of Moody’s Analytics, Mark Zandi, shared his views on a potential interest rate reduction by the US Federal Reserve. The crypto market is paying close attention to this development as it could have significant implications for cryptocurrencies.
Potential Interest Rate Cut by the US Fed
Zandi, in an interview with Bloomberg, expressed his belief that the Federal Reserve should consider reducing interest rates. He noted that financial conditions are favorable, with the Fed successfully managing inflation levels. He also highlighted the employment rate, suggesting that maintaining current interest rates may not be necessary.
While the Federal Reserve aims for a 2% inflation rate based on the Personal Consumption Expenditures (PCE) price index, Zandi questioned whether this target is optimal and suggested it might need adjustment. He argued against sacrificing economic growth for the sake of a 2% inflation target.
The upcoming Federal Open Market Committee (FOMC) meeting on June 12-13 will include a decision on interest rates. Current data indicates a 99.4% probability of the Federal Reserve maintaining existing interest rates. Crypto markets are sensitive to interest rate changes, as lower rates can boost investor confidence in risk assets like cryptocurrencies.
Initial expectations of a mid-year interest rate cut fueled optimism in the crypto market. However, recent indications from the Federal Reserve suggest a delay in rate adjustments, prompting financial analysts at JPMorgan and Citi to revise their projections, anticipating rate cuts in September or November.
Positive Factors for Crypto Market
Despite the likelihood of unchanged interest rates in the upcoming FOMC meetings, there are positive developments to consider. The launch of Spot Ethereum Exchange-Traded Funds (ETFs) in late June or early July is anticipated. This event could trigger a market rally similar to the impact seen with Spot Bitcoin ETFs.
The Spot Bitcoin ETFs are experiencing increased demand and positive performance, potentially serving as driving forces for a continuation of the bullish trend in the crypto market. If the Federal Reserve does cut interest rates in the predicted September or October timeframe, market sentiment is likely to turn more bullish.
