On September 18, 2024, the Federal Reserve announced a 50 basis point cut in the interest rate. This event significantly affected both economic and financial markets.
Fed's Decision and Its Justification
The Federal Open Market Committee (FOMC) decided to cut the interest rate, citing current economic indicators showing robust economic activity. Despite slowing job growth, unemployment remains low. Inflation is approaching the 2% target, though it is still somewhat high. "The Committee seeks to achieve maximum employment and stable inflation at around 2% in the long term. The Committee notes that inflation is steadily moving towards this goal. Given the progress in reducing inflation and the balance of risks, the FOMC decided to lower the target range for the federal funds rate by 0.5 percentage points to 4.75%-5%", according to the official statement. This is the first rate cut since March 2020, when it was at the highest level in 23 years — 5.25%-5.50%.
Crypto Market Reaction
Following the interest rate cut announcement on September 19, 2024, the cryptocurrency market saw significant price increases. Bitcoin reached $60,800, while Ethereum traded around $2,300. The total cryptocurrency market capitalization was approximately $2 trillion, down 1.65% in the last 24 hours.
Arthur Hayes' Forecast
Arthur Hayes, co-founder of BitMEX and current Chief Investment Officer at Maelstrom, predicted short-term fluctuations in the crypto market following the Fed's announcement. Hayes critically assessed the rate cut, noting that the US government is spending large sums of money comparable to wartime expenses. "When many hope for the rate cut to positively impact the stock market, I believe the market will crash a few days after the cut," Hayes stated. He also noted that the rate cut might narrow the interest rate gap between the US dollar and the Japanese yen, which could cause financial instability.
The Fed's interest rate cut had a significant impact on financial markets, including cryptocurrencies. While some analysts see positive opportunities, others warn of potential economic risks.
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