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FameEX Hot Topics | Potential 2024 Rate Cut by US Fed Could Serve as Ideal Catalyst for Bitcoin Halving

2023-12-12 16:20:11

Goldman Sachs, the world's second-largest investment bank, is forecasting that the United States Federal Reserve may make two interest rate cuts within the next two years, potentially commencing as early as the third quarter of 2024. The connection between interest rates and investor risk appetite is well-established. Initially, Goldman Sachs projected the inaugural Fed rate cut to occur by December 2024. However, in light of diminishing inflation, their prediction has been adjusted, now placing the first cut in Q3 of 2024, as per a report by Reuters on December 11.

Goldman Sachs envisions that these two anticipated Fed rate reductions could lead to interest rates concluding at 4.875% by the close of 2024, a shift from their prior estimate of 5.13%. This adjustment reflects the bank's prudent assessment of the U.S. economic landscape and its readiness to recalibrate forecasts in response to evolving data.

This modification aligns with data released on December 8, revealing stronger-than-expected U.S. labor market performance. The U.S. Labor Department's monthly jobs report indicated 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 to transpire in Q1 of 2024, two quarters ahead of Goldman Sachs' previous projection.

A segment from Goldman Sachs' statement on Fed interest rate cuts reads, "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 Federal Open Market Committee determines the federal funds rate, which serves as a benchmark for lending by U.S. banks. Presently, this rate spans a range from 5.25% to 5.50%. When the Federal Reserve reduces interest rates, borrowing costs decrease, fostering a heightened 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 appealing 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 tends to make the market more risk-tolerant, encouraging capital inflow into both the equity and cryptocurrency markets, away from less volatile asset classes. The Federal Reserve initiated interest rate tightening in March 2022 amid rising inflation, elevating 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 surge.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.

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