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In the weeks leading up to the Fed announcement scheduled for September 17, expectations in the crypto and broader finance community had shot up that the Fed would finally implement rate cuts. As a result, the target rate probabilities on the FedWatch Tool had seen a peak of 97.6% expectancy of a rate cut. With the decision so close by, the expectations for a rate cut have remained as investors have not changed their stance.
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 that rates would come down after the latest meeting, pushing the interest rates down to the 4.00%-4.25% region.
After rising over 97% in the past week, the probability of a rate cut has maintained an over 95% average. At the time of writing, the tool is now showing 96.1% probability of the Fed cutting interest rates. This is still very close to the 97.6% that was 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 that was not seen last week. This shows how market watchers are viewing the FOMC meeting at this time, and with the announcement so close, it is likely to come out in favor of this.
Source: FedWatch Tool
In all of this, the 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, something that 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. This is because lower interest rates encourage more risk-taking, and often, the effect of an interest rate cut is 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.
Total market cap falls below $4 trillion | Source: Crypto Total Market Cap on TradingView.com
Featured image from Dall.E, chart from TradingView.com
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