The Fed Cuts Interest Rates 25 Bps, What Does This Mean for the Crypto Market?

Bittime - On November 7 2024, The Federal Reserve (The Fed) announced a cut in its benchmark interest rate by 25 basis points (bps), which is now in the range of 4.50%-4.75%. This cut brings the total interest rate reduction in 2024 to 75 bps. 

This decision is seen as an effort to support US economic growth which is starting to slow down, as well as responding to inflation which is showing a downward trend.

Why is the Fed Cutting Interest Rates?

The Fed took this step because inflation in the US was starting to come under control, and the US economy was showing signs of weakness. As a central bank, the Fed has two main mandates: maintaining price stability and supporting economic growth. 

Therefore, by reducing interest rates, the Fed hopes to stimulate domestic demand and provide a boost to sectors that are more sensitive to interest rates, such as consumption and investment. 

Deputy Chairman of the Board of Commissioners of the Financial Services Authority (OJK), Mirza Adityaswara, stated that many analysts estimate that the Fed still has room to cut interest rates further, even up to 3.5%-4%. 

"Based on market consensus, the Fed could reduce interest rates further in the near future," he said at the OECD/INFE-OJK Conference in Bali, November 8 2024.

Impact of Lower Interest Rates on Crypto Markets

Lower interest rates tend to have a positive impact on risk asset markets, including crypto. With lower interest rates, borrowing costs become cheaper, which encourages investors to look for assets with higher return potential, such as cryptocurrencies. 

This increases demand for crypto, which could trigger price increases in the short term.

However, crypto market volatility remains high. Although looser monetary policy can stimulate investor interest, sharp price fluctuations remain a risk. The crypto market is heavily influenced by external factors, including monetary policy and global political turmoil.

Further Prospects

The Fed is expected to resume cutting interest rates in December 2024, although some analysts warn that inflationary pressures or political factors, such as the possible return of Donald Trump to the presidency, could hinder further cuts. However, with looser monetary policy, the crypto market could continue to attract investor attention.

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Conclusion

The Fed's interest rate cut opens up positive opportunities for the crypto market, although volatility remains to be watched. This policy may increase the attractiveness of crypto as an investment alternative, but risks remain. As an investor, it is important to continue to monitor monetary policy developments and broader market dynamics.

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