As inflation subsides, Goldman Sachs predicts the Federal Reserve will implement a series of 25 basis point rate cuts from November 2024 to mid-2025. These successive cuts are expected to bring the terminal interest rate back to 3.25-3.5%, raising questions about whether this shift could spark a new bull run in the cryptocurrency market.
Fed strategy to stabilize inflation
Currently, the Fed’s overnight rate is between 4.75 and 5.00%, with a 94.1% chance of a 25 basis point cut at the next meeting, according to the CME FedWatch Tool. By cutting rates, the Fed aims to reach its 2% inflation target, which has remained elusive.
Lower interest rates often make borrowing more affordable, encouraging investment in higher-risk assets such as cryptocurrencies.
Bitcoin, for example, rose 3% in mid-September following a recent Fed rate cut of 0.5 percentage points, with the price now hovering at $62,120 – a sign that the market could react positively to these expected cuts.
How interest rate cuts could affect crypto
Rate cuts have historically driven investors toward high-growth assets, including digital assets, as the appeal of traditional financial products diminishes. Lower interest rates could weaken the dollar, which could increase investor interest in cryptocurrencies as an alternative store of value.
If the expected rate cuts materialize, Bitcoin and other major cryptocurrencies could benefit from new capital inflows, fueling potential price growth in the coming months.
Global interest rate cuts
In a similar move, Goldman Sachs predicts that the European Central Bank (ECB) will also start cutting interest rates, starting with a cut of 25 basis points. The ECB is expected to continue this trend until it reaches 2% interest rates by mid-2025.
This coordinated easing by central banks could create favorable conditions for crypto markets worldwide, as lower traditional yields make digital assets an attractive option for yield-seeking investors.
With both the Fed and ECB looking to ease interest rates, the environment appears set for risky assets, including cryptocurrencies, to recover.