Source: Zhitong Finance
Goldman Sachs has continuously adjusted the Fed's interest rate cut trajectory since this year; the previously anticipated June rate cut has now even been further postponed by some interest rate futures traders until September or later, so the cryptocurrency market may be affected.
Wall Street bank Goldman Sachs (Goldman Sachs) can be described as making continuous adjustments to the Fed's interest rate cut trajectory this year. The agency predicts that the Fed will cut interest rates three times before the end of this year, but the latest changes in Goldman Sachs's expectations indicate that the first rate cut this year will occur in June rather than in March as previously anticipated by Goldman Sachs, which is basically in line with market consensus. According to some cryptocurrency analysts, the continued cooling of expectations of the Federal Reserve's interest rate cuts may cause investors to temporarily choose to hold more traditional assets such as low-risk treasury bonds with high yields, which may cause large fluctuations in the cryptocurrency market.
At first, Goldman Sachs economists predicted that the first rate cut by the Federal Reserve would occur in December 2024. They expected to cut interest rates only once, or 25 basis points, in 2024. However, since then, the agency has drastically revised its forecast report in mid-December 2023, announcing that the Federal Reserve may cut interest rates three times. The first time is expected to be in March 2024.
However, after entering 2024, Goldman Sachs expects the Fed to cut interest rates for the first time in May 2024. At the same time, Goldman Sachs expects the Federal Reserve to cut interest rates four times, but as US inflation clearly heated in the first quarter and the hawkish stance of the Federal Reserve officials, Goldman Sachs economists revised the Fed's interest rate cut expectations again in March. The agency recently showed that the first time the Fed would cut interest rates in June, and the number of interest rate cuts was revised to 3 times.
In addition, Goldman Sachs economists also expect the Federal Reserve to cut interest rates four times in 2025 and once in 2026. They estimate that the final interest rate will stay between 3.25% and 3.5% for a long time, lower than the current 23-year high of 5.25% to 5.5%.
Since December 2023, the global financial market can be said to have greatly absorbed the expectation that interest rates will be cut about three times in 2024; the first time the interest rate futures market in early 2024 made a common bet that the timing of the first time the US Federal Reserve cut interest rates was at the March meeting. But the extremely hot economic data from inflation and non-agriculture, as well as the consistent hawkish signals from the Federal Reserve officials themselves, have greatly lowered expectations. At the same time, although it is expected that the Fed will cut interest rates in June as the consensus of most interest rate futures traders, some traders are now further delaying the timing of interest rate cuts until September or later.
After the release of core PCE data in line with market expectations, the CME “Federal Reserve Watch Tool” showed that the probability that the Fed would cut interest rates in June was as high as 66%, suggesting that most interest rate futures traders are betting on cutting interest rates in June rather than the March interest rate cut in early 2024, but about 40% of traders still think that the second half of the year is more likely to be the time for the Fed to cut interest rates for the first time. At the same time, traders are betting that the Fed will cut interest rates 3 times this year, for a total of 75 basis points — in line with the expectations of interest rate cuts implied by the median FOMC bitmap for December and March last year.
Federal Reserve Chairman Jerome Powell (Jerome Powell) said after PCE data was released that the Federal Reserve has always believed that the US economy will not go into recession. He pointed out that due to the uncertainty of potential inflation trends, it is difficult to predict when the Fed will lower interest rates and encourage current economic growth trends. Powell said that although the path to falling inflation is difficult, it is generally on a downward trend, and it is expected that the Federal Reserve will start cutting interest rates sometime this year, or it is appropriate.
The cryptocurrency market is likely to be adversely affected by the continued cooling of expectations of the Federal Reserve's interest rate cuts. Undoubtedly, the Fed's long-term maintenance of high interest rates means that risk-free returns on the denominator side of the DCF model continue to be high, and this potential trend is closely related to the strong bearish sentiment of cryptocurrencies such as Bitcoin and the decline in investors' overall risk appetite for cryptocurrencies.
When evaluating assets, investors have traditionally attached great importance to the Fed's interest rate decisions and the Fed's monetary policy expectations management mechanism. When interest rates fall and market expectations heat up across the board, capital is expected to pour into high-risk, high-yield assets, and the holding value of traditional low-risk assets such as government securities will usually drop drastically, making Bitcoin and other cryptocurrency assets more attractive.
However, the Fed's decision to continue to delay interest rate cuts and the Fed's hawkish management of expectations may cause investors to temporarily choose to hold traditional assets with very low risk and relatively optimistic returns. This may cause large fluctuations in the cryptocurrency market. In particular, Bitcoin, which is currently hovering around $70,000, may enter a pullback trend. However, if the US economy has maintained a very strong growth pace that exceeds expectations, investors' high level of demand for high-risk, high-yield assets such as cryptocurrencies is expected to be maintained for a long time.