Fed Rate Cut Possible by Bitcoin Halving? 

Goldman Sachs, one of the world’s leading investment banks, anticipates that the U.S. Federal Reserve may implement two interest rate cuts in the coming two years, potentially starting in the third quarter of 2024. This revised forecast is earlier than their initial prediction of a cut by December 2024, influenced by signs of cooling inflation, as reported by Reuters on December 11.

The expected rate cuts by the Fed, as per Goldman Sachs’ analysis, could reduce interest rates to 4.875% by the end of 2024, down from their previous estimate of 5.13%. This update follows the U.S. Labor Department’s December 8 report indicating a stronger-than-anticipated labor market, with the unemployment rate dropping to 3.7% in November from 3.9% in October.

Traders, as per a Reuters report, believe that the robust labor market won’t prevent the Fed from lowering interest rates. They anticipate the first rate cut might occur as early as the first quarter of 2024, ahead of Goldman Sachs’ projection.

Goldman Sachs’ note on the matter reflects a balance between the positive growth and labor market data, which suggest immediate rate cuts aren’t necessary, and the improved inflation outlook, which could lead to earlier normalization cuts.

The federal funds rate, set by the Federal Open Market Committee, acts as a benchmark for U.S. bank lending. It currently varies between 5.25% and 5.50%. Lower Fed interest rates typically encourage borrowing and risk-taking in economic and financial markets, including cryptocurrencies. Conversely, rate increases are used to curb inflation and can deter investment in volatile assets like crypto by making fixed-income assets more appealing.

The Fed’s interest rate hikes directly affect the crypto market as they shape investor behavior. Higher interest rates make traditional assets more attractive, causing a shift away from riskier assets such as cryptocurrencies, potentially leading to price corrections.

However, lower interest rates generally boost risk tolerance, redirecting capital flow back into equity and crypto markets from less volatile assets. After initiating rate increases in March 2022 to combat inflation, starting from a low of 0%–0.25%, the Fed’s potential rate cuts in 2024 could align with the Bitcoin halving event in April, potentially acting as catalysts for a post-halving price surge.