BlackRock Investment Institute says don’t count on the Federal Reserve slashing US interest rates as much as the bond market expects.
BlackRock's Arguments
They argue that the US economy is still too strong and inflation is still too high for the central bank to make any deep cuts. Market traders are betting on a total of 120 basis points worth of rate cuts this year alone, and they’re expecting even bigger cuts—up to 250 basis points—by the end of 2025. That would bring the current interest rate range of 5.25%–5.5% down to around 2.8%–2.9% by the end of next year. But BlackRock believes these expectations are overblown, and that markets are preparing for rate cuts like those seen in past recessions. But they don’t think it’ll go that far. They see a combination of factors—including an aging workforce, budget deficits, and geopolitical tensions—keeping inflation and interest rates higher in the short-to-medium term.
Market Expectations and Expert Opinions
Bond yields are reflecting these big rate cut expectations, but if the cuts aren’t as deep as people think, the bonds aren’t going to perform as well. BlackRock is also bearish on short-term US Treasuries. On the other hand, they’re bullish on stocks, particularly those tied to artificial intelligence (AI). They see long-term growth potential in AI, which is why they’re overweight on US equities. Shannon Saccocia, Chief Investment Officer at Neuberger Berman, says that if the Fed goes for a big cut, like 50 basis points, it could signal that the economy is in worse shape than people thought. In that case, investors might bail on risky assets.
Impact on the Crypto Market
Investors are skeptical about whether the cuts will even help the crypto market, especially Bitcoin, which right now is down about 3%, sitting at $58,158 after recently surging past $60,000. As usual, Ether is not doing any better, dropping roughly 4% to $2,302. Lower interest rates typically boost crypto by reducing borrowing costs and increasing liquidity, making it easier for investors to take risks. Gautam Chhugani, an analyst at Bernstein, sees some opportunities for the crypto market if the Fed opts for smaller cuts. Stablecoin lending yields could rise above 5%, potentially attracting institutional investors back into decentralized finance (DeFi) markets, particularly on the Ethereum network. But even a smaller cut isn’t a sure thing. Dave Birnbaum, Vice President of Product & Marketing at Coinbits, says that while lower rates usually help Bitcoin, the motivation behind it matters.
Experts believe that significant US interest rate cuts are unlikely despite market expectations. The impact on the crypto market remains uncertain and will largely depend on the Federal Reserve's future actions and the state of the global economy.
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