On Wednesday, the Fed will announce its interest rate decision, marking the first interest rate cut after four years. Since early 2022, the rapid increase in interest rates by the United States has caused fluctuations in risk markets. Such unprecedented speed in rate hikes even resulted in bank bankruptcies due to bond discounts in March 2023. So, what should we know about the Fed’s interest rate cuts?
Fed’s Interest Rate Path
When inflation peaked in 2021, Powell claimed it was temporary. By early 2022, the severity of the situation became clear from the Fed minutes, indicating necessary measures would be taken. Consequently, the Fed increased rates swiftly, leading to a rise in DXY while risk markets fell.
Bitcoin 
$78,262 had multiple reasons for its price decline. The transition to tight monetary policy by the Fed negatively affected risk markets, causing many cryptocurrency companies to go bankrupt during the “crypto credit frenzy.”
Even Genesis, previously the largest crypto lender under the largest crypto company group DCG, filed for bankruptcy. Companies like 3AC and Celsius, though forgotten by many investors today, were once the architects of bear markets. Now, the nightmare is ending; Powell recently stated that they are convinced of the path to 2% inflation after months of assurances.
What Happens to Cryptocurrencies?
During Fed interest rate cut periods, policy changes can trigger sales in risk markets that could last longer. If history repeats itself, this month’s decline may continue to impact stock markets for a while longer, indicating a few more weeks of negativity in the markets.
Despite Japan’s recent inflation figures, officials stated it was not the right time to raise rates further. This suggests traders exposed to low-cost risk markets may not need to make significant sales, as seen with the sell-off earlier last month.
In the above, you can see the market’s expectations for interest rate cuts in upcoming meetings. Bond yields have been revised downwards, and the markets are not ignoring the possibility of a 50bp cut.
