The second-largest investment bank in the world, Goldman Sachs, has said that the US Federal Reserve might lower interest rates twice in the next two years, starting as early as the third quarter of 2024.
The prediction, which at first said that the first rate cut would happen in December 2024, has been pushed up to the third quarter of 2024 because inflationary forces have slowed down.
The investment giant now thinks that these two Fed rate cuts will lower interest rates to 4.875% by the end of 2024, down from its previous prediction of 5.13%. This change happened after strong U.S. job market data came out on December 8 and showed better-than-expected results. In October, the monthly jobs report from the U.S. Labor Department showed that the jobless rate fell from 3.9% to 3.7%.
A strong job market is thought to keep the Federal Reserve from lowering interest rates, but traders mentioned by Reuters think the first cut will happen in Q1 2024, which is two quarters earlier than Goldman Sachs’ original prediction. In its note on Fed interest rate cuts, Goldman Sachs talks about the positive signs for the economy and job market. The firm says that while insurance cuts are not likely to happen soon, normalization cuts might happen a little earlier.
The Federal Open Market Committee sets the federal funds rate, which is a key factor in how much U.S. banks give. The federal funds rate is currently between 5.25% and 5.50%. Any change in this rate has big effects on many areas.
When the Federal Reserve lowers interest rates, it becomes easier for people to borrow money. This makes buyers in economic and financial markets, including those who trade cryptocurrencies, more willing to take risks. On the other hand, rising interest rates are often used to stop inflation and make standard currencies less valuable, which stops money from flowing into the crypto market.
Interest rate hikes by the Federal Reserve have a big effect on the cryptocurrency market because they can change how investors act. When interest rates rise, safe investments like bonds become more appealing. This causes money to move away from volatile investments like cryptocurrencies. This reallocation could cause less demand, which could cause prices to drop in the crypto market.
On the other hand, when interest rates go down, the market becomes more willing to take risks. This causes money to flow from less volatile asset types into stocks and cryptocurrencies.
As inflation rose, the Federal Reserve started to raise interest rates in March 2022. Rates were slowly raised from as low as 0% to 0.25%. Rate cuts are expected to happen in 2024, and Bitcoin will be cut in half in April. This could cause prices to rise in the cryptocurrency market after the splitting.
These events show how complicated the connections are between the policies of central banks, regular financial markets, and the constantly changing crypto scene.
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