Crypto Markets Brace for Volatility As Fed Signals Delay in Rate Cuts

Crypto markets have long tried to pick up cues to take an upward trajectory. However, since Bitcoin ETFs were approved, the digital asset world has been severely rangebound. An event that could have provided some sense of relief for the crypto markets was the US Fed’s interest rate decision. However, the hawkish tone from various Fed officials has signaled that rate cuts might take longer than anticipated. In the latest development of the Fed pushing rate cuts away, a non-voting member of the Federal Open Market Committee has taken a bearish jib at the future of interest rates.

Susan Collins signals a delay in Fed rate cuts

According to a report by Yahoo Finance, before cutting interest rates, Boston Fed President Susan Collins stated she needed more proof that inflation is returning to the Fed’s 2% target. However, she added that rate reduction may occur “later this year.” During a lecture in Boston, Collins stated, “I will need to see more evidence before considering adjusting the policy stance.” Collins is a non-voting member of the Federal Open Market Committee of the Federal Reserve, which sets interest rate policy.

The Federal Open Market Committee had previously decided to maintain the target range for the federal funds rate at 5.25%–5.5.  It had also voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective February 1, 2024. The market had priced in a near 96% chance of the Fed keeping the rates steady according to the CME FedWatch Tool.

Collin’s remarks resonate with those made by other Fed officials, especially Chair Jerome Powell. Powell had signaled in his speech that economic conditions as such do not pave the way for rate cuts to happen soon.  However, global markets, including the crypto sphere had expected the Fed to signal rate cuts as early as this March.

Economic data points towards delay in rate cuts

Various data points in the US have solidified the idea that the Fed might be right with its decision to not start cutting rates soon. According to Deloitte, the United States had a startling and unexpected surge in employment in January. Current data suggest that job growth is well above expectations.

In a similar tone, the ISM Manufacturing PMI index for January came in at 49.1%, beating Wall Street’s forecast of 47.2 percent. The numbers also came higher from 47.1% in the previous month. Even though it falls short of the 50 readings required to indicate a sector increase, this value was the highest since October 2022.

Though the Fed’s rate decision trajectory is not only based on these two data points, it does significantly fan concerns that a rate cut might take time in the future.

Crypto markets to face volatile trading as Fed concerns loom

The Federal Reserve’s rate decisions have long been a key indicator that investors use to assess investments. Lower interest rates frequently increase the allure of assets like crypto by devaluing government securities. According to The New York Times, in recent months, there has been a fluctuation in the anticipation of rate reductions. Following the Fed’s December signal that rate cuts would probably come sometime in 2024, the futures market started to anticipate that the rate cuts would begin at the Fed’s March meeting.

However, with the latest developments, financial markets have braced themselves for volatility in the future. Even a slight signal of future rate cuts by the Fed can help boost risk appetite amongst investors, resulting in more trading volumes in the crypto market. But at present, with the absence of positive cues, trading in the crypto market seems to be on track for some turbulence.