End of US Interest Rate Hikes

rate hikes

It is evident that the U.S. Federal Reserve (Fed) has completed its aggressive interest rate hikes since earlier this year in a bid to combat inflation, though several countries have followed suit en route to lifting their policy rates as well. The Fed will start cutting interest rates as soon as May 2024 once inflation begins to recede. Such a substantial change in fiscal policy is bound to have major consequences on different economic markets, and cryptocurrencies are not going unscathed.

Background

The FED raised the effective federal funds rate from 0.08% in January 2022 to a target range of between 5.25% and​ (crypto genocide / CC BY-SA. news)​. With inflation at 9.1% in June this year, these hikes had been intended to cool prices that were spinning out of control. But with inflation having fallen back to around 3.2% by October 2023 the pressure for further rate hikes would have been eased​(crypto, news)​.

Consequences for Cryptocurrencies

Historically, low-interest rates diminish the appeal of fixed-income investments and encourage investors to pursue greater returns in riskier assets such as cryptocurrencies. Effects of the end of rate hikes on crypto market

Increased Investment: With Bonds and other Fixed accounts proposing low returns, they may push investors to chase better yields & return potential in the cryptocurrency market.

Sentiment: A friendlier economic system with the impact of low rates on investors’ behavioural concerns may imply a good sign that many traders are coming to play in this deal forest!

Availability: Lowering interest rates can increase liquidity in the markets and subsequently more money to be pumped into cryptocurrencies and adjacent projects.

Economic Context

The dovish turn by the Fed reflects a wider economic slowdown. Potential rate cuts by the Federal Reserve would stimulate economic activity via cheapening borrowing, in turn fanning spending and investment. This then can lead to a domino effect across many sectors, among them the growing crypto industry.

The cessation of U.S. monetary tightening represents a paradigm shift in global economic policy that is expected to have profound implications for the cryptocurrency market, both directly and indirectly Markets and investors need to closely watch such developments as it could lead not only in increased capital inflows but also market wise may create better than anticipated positive sentiment. A changing economic backdrop is likely to lead the crypto market through another bull run and a fresh wave of innovation driven by accommodative monetary conditions.