The largest asset manager in the world, BlackRock, has cautioned about the possibility of higher market volatility after U.S. interest rates were recently lowered by 50 basis points by the Federal Reserve.
Market Reaction to Rate Cuts
The Fed rate cut may provide short-term market boosts, but according to Jean Boivin, head of the BlackRock Investment Institute, it also increases the risk of volatility in the upcoming months if inflation and economic growth in the U.S. do not match the Fed's forecasts.
BlackRock's Comments
Boivin noted that the state of the economy is still very uncertain. The near-unanimous agreement on the rate cut was somewhat surprising despite divergent opinions preceding the Fed's decision. He continued by saying that based on data from LSEG Refinitiv, financial markets are currently pricing in an extra 71 basis points of rate reductions from 2019.
Impact on Crypto Market
Some analysts caution that if the rate cut is not carefully managed, it could exacerbate inflationary pressures or result in economic imbalances. This development may have significant implications for the cryptocurrency market, especially for assets such as Bitcoin and Ethereum. Generally speaking, rate reductions increase the cost of borrowing and boost financial market liquidity. For riskier assets like cryptocurrencies, which often gain from a more accommodating monetary policy, this may be advantageous. Short-term bullish conditions for Bitcoin and Ethereum could result from the rate cut as investors look for greater returns in low-interest environments.
In the short term, the rate cut may benefit markets, including cryptocurrencies, but future developments will depend on economic data and actions from the Federal Reserve.
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