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The Fed interest rate decision, which is of great importance for Bitcoin and global markets, will be announced on Wednesday. While the Fed is expected to make its first interest rate cut, according to experts, this reduction will start the easing cycle that has historically supported risky assets, including Bitcoin.
But uncertainty is raising risks in markets as traders remain divided over the magnitude of the upcoming rate cut, with traders bracing for a potential volatility surge in financial markets after Wednesday's rate decision.
“The Fed's first rate cut should have been a welcome relief point to celebrate,” Scotiabank Economics Vice President Derek Holt said in a statement. “But unfortunately, the Fed's poor communication and uncertainty about the magnitude of the rate cuts are what's playing out in markets, which is that the rate decision is going to be very volatile.”
Scotiabank's Holt said Fed officials may not really know what to do, and there could be significant differences of opinion among FOMC participants on whether to cut interest rates.
Marc Chandler, chief market strategist at Bannockburn Global Forex, told CoinDesk that the probability of a rate cut is almost 50% with the Fed meeting just around the corner.
“Rarely has the market entered a Fed meeting with maximum uncertainty (between 25-50 basis points).
The market had been resigned to a 25 basis point rate cut until it was suspected to be a fabrication by Fed officials to put 50 basis points on the table on Thursday. The market took the bait, raising the possibility of not just one but two half-point and a quarter-point cuts in the year’s remaining three meetings.
But I suspect a 50 basis point cut would not be good for risk assets like Bitcoin.”
According to the FED Watch Tool, a 50 basis point cut by the Fed this week is priced in at 59%, and a 25 basis point cut is priced in at 41%. While many Wall Street economists are sticking to the expectation that the Fed will make a 25 basis point gradual rate cut at its monetary policy meeting to be held on Tuesday and Wednesday, some economists expect a 50 basis point rate cut.
*This is not investment advice.