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The world’s second largest investment bank, Goldman Sachs, predicts that the US Federal Reserve could lower interest rates twice within the next two years, starting from the third quarter of 2024. This potential development, coupled with the expected Bitcoin halving event in April, could kickstart a significant period in the crypto market.
Goldman Sachs Changes Its Expectations
Interest rates in the US economy have a strong correlation with investors’ risk appetite. Goldman Sachs had previously predicted the first Fed rate cut would be made by December 2024, however, according to a news shared by Reuters on 11 December, this estimate has been brought forward to the third quarter of 2024 due to persistent inflation data.
The credit institution expects the Fed’s two interest rate cuts to bring the rates down to 4.875% by the end of 2024, while the previous estimate was 5.13%. This change was updated following the announcement on December 8 of data showing stronger than expected results for the US labor market, after the US Department of Labor’s monthly employment report indicated a drop in the unemployment rate from 3.9% in October to 3.7%.
Interest Rate Cuts Could Revitalize the Crypto Market
According to a report published by Reuters, investors state that a stronger labor market performance will not deter the Fed from cutting interest rates. Investors expect the first cut to occur in the first quarter of 2023, two quarters earlier than Goldman Sachs’s third quarter prediction. A part of Goldman Sachs’s note on Fed interest rate cuts includes the following statement:
“Healthy growth and labor market data indicate that insurance cuts are not imminent. However, better inflation news shows that normalization cuts may come a little earlier.”
The federal fund rate is determined by the Federal Open Market Committee and serves as a guide for loans provided by US banks. It is structured as a range with an upper and lower limit. Currently, the federal fund rate ranges between 5.25% and 5.50%.
On the Fed front, when interest rates drop, borrowing becomes cheaper, and it increases the risk appetite among investors in the economy and financial markets, including crypto assets. An increase in interest rates is usually used to control inflation and reduce the purchasing power of fiat currencies, and it somewhat obstructs the flow of capital into the crypto market.
