In the weeks leading up to the Fed announcement scheduled for September 17, expectations in the crypto and broader finance community have surged that the Fed will finally implement rate cuts. As a result, the target rate probabilities on the FedWatch Tool peaked at 97.6% for a rate cut.
Rate Cuts: Interest Rates Expected to Fall to 4.0%-4.25%
Sticking to the established trend, the market continues to expect the Fed to cut rates on September 17. After spending weeks in favor of a rate cut, the FedWatch Tool on the CME Group website shows that market watchers are now favoring a rate reduction after the latest meeting, pushing the interest rates down to the 4.00%-4.25% region.
The probability of a rate cut has maintained an average over 95%, rising over 97% in the past week. At the time of writing, the tool is showing a 96.1% probability of the Fed cutting interest rates, which is still very close to the 97.6% recorded and reported by NewsBTC a little over a week ago.
Interestingly, the tool has now debuted a 3.9% probability of interest rates being cut down even further to 3.75%-4.00%, a complete flip not seen last week. This shows how market watchers are viewing the FOMC meeting at this time.
One thing that has not changed is the sentiment around a possible rate hike. Over this time, there has been a 0% probability that the Fed would choose to increase interest rates at this time, which would be bearish for the markets.
Crypto Market Could See Volatility
In the event of a rate cut to 4.00%-4.25%, expectations are that risk assets such as crypto and stocks will benefit the most. Lower interest rates encourage more risk-taking, and the effect of an interest rate cut is often felt right after the announcement.
It is expected that an interest rate cut will send the crypto market soaring. However, it is prudent to watch how the market unfolds before jumping in, as volatility will be quite high in the first few hours following the announcement.
It is also possible that the Fed would choose to keep interest rates the same, which would not be as bullish for the markets, but wouldn’t exactly be bearish either. In contrast, an interest rate hike would definitely crash the market. 📉
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