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FameEX Hot Topics | A 2024 US Fed Rate Cut Could Act as the Perfect Catalyst for Bitcoin Halving
2023-12-12 16:20:10
Goldman Sachs, the world's second-largest investment bank, is forecasting the possibility of two interest rate cuts by the United States Federal Reserve within the next two years, potentially commencing as early as the third quarter of 2024. This prediction is grounded in the well-established link between interest rates and investor risk appetite. Initially, Goldman Sachs had projected the inaugural Fed rate cut to occur in December 2024. However, in response to diminishing inflation, they have revised their forecast, now placing the first rate cut in Q3 of 2024, as reported by Reuters on December 11.
Goldman Sachs envisions that these two anticipated Fed rate reductions could result in interest rates concluding at 4.875% by the close of 2024, marking a shift from their prior estimate of 5.13%. This adjustment reflects the bank's prudent approach to assessing the U.S. economic landscape and their readiness to adapt forecasts based on evolving data.
This revision aligns with data released on December 8, which indicated stronger-than-expected U.S. labor market performance. The U.S. Labor Department's monthly jobs report revealed a decline in the unemployment rate from 3.9% in October to 3.7%. Despite these encouraging labor market dynamics, traders cited in the Reuters report believe that the Federal Reserve will not be deterred from implementing interest rate cuts. They anticipate the initial cut occurring in Q1 of 2024, two quarters ahead of Goldman Sachs' previous projection. Goldman Sachs' statement on Fed interest rate cuts includes a segment stating, "Healthy growth and labor market data suggest that insurance cuts are not imminent... But the improved inflation outlook does imply that normalization cuts could occur somewhat earlier." The determination of the federal funds rate, which serves as a benchmark for lending by U.S. banks, rests with the Federal Open Market Committee. Presently, this rate spans a range from 5.25% to 5.50%. When the Federal Reserve reduces interest rates, it decreases borrowing costs, fostering an increased appetite for risk among economic and financial market participants, including those in the cryptocurrency sector. Conversely, when interest rates rise, traditional investment assets such as bonds and fixed-income instruments become more attractive due to their stable returns. This shift in investor sentiment can divert funds away from volatile assets like cryptocurrencies, potentially resulting in price adjustments or declines. A reduction in interest rates typically enhances the market's risk tolerance, encouraging capital inflow into both the equity and cryptocurrency markets, at the expense of less volatile asset classes. The Federal Reserve initiated interest rate tightening in March 2022 amid rising inflation, raising rates from levels as low as 0%–0.25%. However, with anticipated rate cuts in 2024 and the forthcoming Bitcoin halving event scheduled for April, both factors could serve as catalysts for a post-halving price rally. Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.
