What Happened with the Fed’s June Announcement?
Traders worldwide held their breath yesterday as the Fed announced their decision and outlook for inflation and potential interest rate cuts. While the Fed kept borrowing rates at 5.25-5.5%, in line with expectations, markets were tense as traders were more focused on hearing their outlook for the rest of the year.
The Fed’s announcement and dot plot confirmed that at least one rate cut will likely happen before the end of the year – eight Fed officials predicted that TWO rate cuts will happen, seven officials predicted one cut, and four predicted no cuts. With the Fed skewing towards 1-2 rate cuts, this means that more money will be circulated in the money supply and directed towards riskier assets such as stocks and crypto.
Did you hear that?
More money could flow towards riskier assets such as stocks and crypto.
Markets ticked upwards in response, with the S&P 500 rising by 0.85% and Bitcoin initially jumping past $68,000 after a steep decline earlier in the week.
Crypto Traders Should Remain Cautious
And yet some analysts say traders should remain cautious. Although the labor market looks to continue on a strong path towards a lower employment rate, a sign of cooling inflation, the FOMC wants to wait for more data to come out, states Quincy Krosby from LPL Financial.
And while there have been signs of progress with inflation easing to 2.7%, this is still too high in the eyes of the Fed. David Russell, global head of market strategy at TradeStation states that the Fed knows conditions are improving, but there isn’t a need to rush with rate cuts.
The Flip Side of the Fed’s June Announcement
And yet May’s small uptick in CPI could mean two quarter-point rate reductions this year, explains Ian Sheperdson, chairman and chief economist at Pantheon Microeconomics. Fed Chairman Powell himself put out a statement saying that “…we are strongly committed to returning inflation to our 2% goal in support of a strong economy that benefits everyone.” So indeed, a rate cut could come into play as soon as September.
Sonu Varghese of Carson Group concurred that two rate cuts could be in play if CPI increases continue at their current rate. Such a continued trend also would be a good sign for potential Q3 and Q4 rate cuts, according to Scott Anderson, chief U.S. economist at BMO Capital Markets.
Is Now the Time for Crypto Traders to Buy?
While the pace of rate changes is uncertain, what is certain is that rates will not go up. And with central banks in both Canada and the E.U. cutting rates, the trend is clear. Now could be the time to buy crypto as prices remain depressed. Lower interest rates over time will fuel spending and investments in speculative assets, which is positive for stocks and crypto over the next 1-2 year time frame.
Traders who have been waiting for a bull market rally may not have to wait much longer.
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