The September decision on interest rates by the Federal Reserve Open Market Committee (FOMC) in the United States was not surprising, as the committee opted to keep rates at the current level of 5.25% to 5.5%. However, what caught many off guard was the Fed’s revised long-term forecast for the Federal Funds Rate. They now anticipate the rate to reach 5.1% by the end of 2024, up from the previous prediction of 4.6% in June. This signifies a “higher for longer” scenario for U.S. interest rates, which was unexpected by most market participants.
As a result, the markets experienced a slight pullback, with the S&P 500 declining by 0.80% and the Nasdaq falling by 1.28% shortly after the announcement. Cryptocurrency markets also reacted negatively, with Bitcoin dropping below $27,000 and Ether falling by nearly 2% to just over $1,600 after Fed Chair Jerome Powell concluded his press conference.
The data indicates that the U.S. economy is returning to a state not seen since before the 2008-2009 financial crisis, where economic growth and inflation remain relatively stable. In this context, an average U.S. interest rate of around 4% over three years and annual inflation exceeding 2% would be unsurprising.
However, investors have become accustomed to central banks injecting easy money into the economy during times of crisis. Now, strong economic growth and stable inflation are viewed as negative news, and the crypto markets seem to share this sentiment. It is interesting to note that Bitcoin was created as a direct critique of the loose monetary policies of central banks like the Federal Reserve and the Bank of England during the financial crisis.
It is now clear that we cannot rely solely on central banks to dictate our investment strategies. Instead, we must focus on the health of companies and the value they bring to customers. In the crypto world, we need to carefully assess the viability of the crypto ecosystem and what it offers as an alternative or complementary financial marketplace.
In the short-to-medium term, we will be eagerly awaiting the U.S. Securities and Exchange Commission’s decision on the numerous spot Bitcoin ETF applications it has received from major asset managers. If even one application is approved, it will solidify Bitcoin’s status as a global asset and pave the way for increased cryptocurrency adoption in portfolios worldwide. However, if the SEC chooses not to approve any of these applications, cryptocurrencies will remain on the fringes as marginal assets.
The FOMC decision and Powell’s comments suggest that there won’t be much excitement on the macroeconomic front in the near future. However, if the U.S. and global economy return to a state resembling the pre-crisis era, it may be exactly what the world, including cryptocurrency markets, needs.
Lucas Kiely, the chief investment officer of Yield App, emphasizes the importance of diversifying investment portfolios and assessing the potential of the crypto ecosystem. He brings extensive experience from his previous roles at Diginex Asset Management, Credit Suisse, and UBS.
Disclaimer: This article is for informational purposes only and should not be construed as legal or investment advice. The views expressed here are solely those of the author and do not necessarily represent the views of Cointelegraph.