Goldman Sachs predicts rate cuts
Goldman Sachs, the second-largest investment bank in the world, has forecasted that the United States Federal Reserve will cut interest rates twice in the next two years, potentially starting in the third quarter of 2024. This prediction aligns with the highly anticipated Bitcoin (BTC) halving event scheduled for April, which could serve as a significant catalyst for the crypto market.
Interest rates and risk appetite
Interest rates have a strong impact on investors' risk appetite. Goldman Sachs initially predicted the first rate cut by December 2024, but this projection has been moved forward to Q3 of 2024 due to cooling inflation. The lender now expects two rate cuts that will bring interest rates to 4.875% by the end of 2024, compared to the previous forecast of 5.13%.
Positive labor market results
The change in Goldman Sachs' forecast comes after the release of data on Dec. 8, which showed stronger-than-expected results in the U.S. labor market. The monthly jobs report from the U.S. Labor Department revealed a decrease in the unemployment rate from 3.9% in October to 3.7%. Despite this positive performance, traders cited by Reuters believe that the Fed will still proceed with cutting interest rates, expecting the first cut to occur in Q1 of 2024.
Impact on the crypto market
When the Federal Reserve lowers interest rates, borrowing becomes more affordable, leading to an increased risk appetite among traders in the economy and financial markets, including cryptocurrencies. Conversely, raising interest rates is often used to control inflation and reduce the purchasing power of fiat currencies, discouraging capital flow into the crypto market.
Investor behavior in the crypto market can be directly influenced by Federal Reserve interest rate hikes. As the Fed raises interest rates, traditional investment assets like bonds and fixed-income assets become more attractive due to their stable returns. This shift in investor preference can result in decreased demand and potential price corrections or declines in the crypto market.
Post-halving catalyst
The Bitcoin halving, scheduled for April, combined with the expected rate cuts in the coming years, could provide a perfect catalyst for the crypto market. As interest rates decrease, the market becomes more tolerant of risk, leading to increased investment in equities and cryptocurrencies from the less volatile asset classes.
Overall, the alignment of the Bitcoin halving with potential rate cuts by the Federal Reserve could create a favorable environment for the crypto market and contribute to its growth and development in the coming years.
