No Fed Rate Cuts? No Worries For Bitcoin, Says Research Firm
18 Abril 2024 - 2:45AM
NEWSBTC
As the US economy grapples with rising inflation expectations and
scaled-back forecasts for Federal Reserve rate cuts, the Bitcoin
market remains buoyant, according to a detailed analysis by
Reflexivity Research. With the US CPI headline inflation projected
to accelerate to 4.8% by the November 2024 elections, according to
Bank of America, conditions are seemingly unfavorable for a
loosening of monetary policy. Despite this, the cryptocurrency
sector, particularly Bitcoin, appears insulated and optimistic.
Bitcoin Unfazed By Delayed Rate Cuts? The bond market now
anticipates only three Federal Reserve rate cuts this year, a
significant reduction from the earlier forecast of six. The CME
FedWatch tool indicates that the majority of market participants do
not expect a rate cut to occur before the mid-September FOMC
meeting. This adjustment reflects a recalibration of expectations
regarding the Fed’s capacity to manage persistent inflation
pressures. Amidst these macroeconomic shifts, Ritik Goyal, in a
guest post for Reflexivity Research, presents a compelling analysis
in his report titled “The Fed is Unable to Cause a Recession. Risk
Assets are Yet to Realize This.” Related Reading: Pre-Halving
Jitters: Bitcoin Price Briefly Slips Below $60,000 The report
argues that, contrary to conventional wisdom, the Federal Reserve’s
rate hikes have had unintended stimulative effects on the economy.
Goyal elucidates three specific mechanisms through which this
phenomenon operates: 1. Increased Government Interest Payments:
“Rate hikes raised interest payments by the government to the
private sector,” Goyal notes. As the Fed raises rates, it increases
the interest burden on the government, which has borrowed
extensively during the post-COVID period. With the federal
debt-to-GDP ratio exceeding 120%, the doubled interest payments now
effectively act as a stimulus, channeling approximately $1 trillion
annually to the private sector 2. Direct Subsidy to Banking System:
The Fed’s policy adjustments have also led to a redistribution of
wealth within the financial system. “Rate hikes raised the Fed’s
direct subsidy to the banking system,” states Goyal. This has
occurred as the yield curve inversion resulted in the Fed incurring
losses on its balance sheet, losses that directly benefit the
banking sector, translating to an estimated $150 billion annual
subsidy. Related Reading: Bitcoin Displays Bullish Adam And Eve
Double Bottom: What It Means 3. Induced Housing Construction Boom:
The rate hikes have paradoxically stimulated the housing market.
“Rate hikes induced a housing construction boom,” according to
Goyal. As higher rates discourage existing homeowners from selling,
the only viable option to meet housing demand is new construction,
a sector with one of the highest GDP multipliers. Goyal’s insights
underline a critical misalignment in the Fed’s current approach
against the backdrop of substantial fiscal interventions since the
pandemic. “The traditional monetary policy framework is breaking
down under the weight of fiscal dominance,” Goyal concludes,
suggesting an environment that could favor non-traditional assets
like Bitcoin. Echoing Goyal’s findings, crypto expert Will Clemente
highlighted the broader implications for cryptocurrencies on X
(formerly Twitter), stating, “With debt/GDP as high as it is, we’re
in a backwards world where high rates mean interest payments on
debt are stimmy checks for people that buy assets—~$1T will be paid
out in 2024. Big picture is very constructive for the internet
coins.” At press time, BTC traded at $61,173. Featured image from
Shutterstock, chart from TradingView.com
Bitcoin (COIN:BTCUSD)
Gráfica de Acción Histórica
De Abr 2024 a May 2024
Bitcoin (COIN:BTCUSD)
Gráfica de Acción Histórica
De May 2023 a May 2024