US Manufacturing Output Signals Delay in Rate Cuts; Will Crypto See a Downturn?

Crypto markets might have to brace for a dented investor sentiment in the future. In a disappointing turn of events, the US manufacturing output data came in higher than expected on Thursday. The data further cemented the idea that the Federal Reserve might take a step back before cutting rates in the future.

US manufacturing output hits highest level since October 2022

According to a report by Yahoo Finance, the ISM Manufacturing PMI index for January came in at 49.1% on Thursday, 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.

Will the Fed start cutting rates soon?

The Federal Open Market Committee decided to maintain the target range for the federal funds rate at 5.25%–5.5% on Wednesday. The market had priced in a near 96% chance of the Fed keeping the rates steady according to the CME FedWatch Tool.

However, the Federal Reserve also noted that recent indicators suggest that economic activity has been expanding at a solid pace in the US. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. The key point in the Fed’s report was that inflation has eased over the past year but remains elevated.

According to Yahoo Finance’s report, the solid rebound in the ISM manufacturing index indicates that the downturn in the sector is fading and appears to justify the Fed’s view that it can wait a little longer before cutting interest rates.

Will crypto take a downward hit?

Cryptocurrencies have always been dependent on investor sentiments. Rate decisions by the Fed have always been an important metric used by market participants to gauge investment. Lower interest rates often make government securities less appealing, bolstering the appeal of assets like cryptocurrencies.

At present financial markets across the globe anticipate a rate cut to happen soon. However, resilient economic data are currently indicating that the state of the economy has not improved enough to allow for significant rate reductions.

CoinGape previously also reported that even when the rate cuts happen, it might take a few months before having a significant impact on high-risk speculative assets like crypto, citing Zakhil Suresh, a crypto asset manager.