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This is what happens to Bitcoin when the Fed cuts interest rates

This is what happens to Bitcoin when the Fed cuts interest rates

The European Central Bank (ECB) has begun changing interest rates. For the first time since 2019, the monetary authorities in Frankfurt am Main cut key interest rates by 0.25 percentage points. The reaction in the financial and cryptocurrency markets was muted. No wonder: Interest rate hikes have been priced in. However, the behavior of the US Federal Reserve, or Fed for short, is less transparent. Will Jerome Powell follow suit and correct US interest rates lower – and what does that mean for Bitcoin?

BTC-ECHO spoke about this with James Butterville, Head of Research at Coinshares.

The president's ultimate stagflation

It usually works in reverse: the Fed sets the pace and the European Central Bank follows. This time the Executive Board of the European Central Bank took the first step and cut interest rates. Now the financial world is looking to Washington. Will the Fed raise interest rates?

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This depends primarily on two factors: inflation and the economy. Both metrics raise concerns. As it became known last week, US GDP growth was a lower than expected 1.6% in the first quarter of this year. For comparison: In the fourth quarter of 2023, economic growth was twice as high, at 3.4 percent. At the same time, there is a risk of inflation, James Butterville told BTC-ECHO.

Meanwhile, core inflation, a key measure of inflation, was much higher than expected, raising fears of stagflation.

The economist said this puts the Fed in an awkward position.

The Fed appears to be in a tough spot: It can't raise interest rates without weakening growth expectations, and it can't cut rates because of concerns about inflation.

James Butterville told BTC-ECHO

In fact, it seems increasingly likely that the Fed will have to respond to the weak US economy. when? This remains just speculation.

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“We expect the Fed to cut interest rates later this year,” the cryptocurrency expert said. However, if economic growth declines more than expected, a significant rise in interest rates may immediately follow.

What happens to Bitcoin next?

This would be good news for non-flowing cash assets like Bitcoin. Eventually, the yield on fixed interest securities such as government bonds declines. James Butterville is also bullish in an interview with BTC-ECHO:

And with Bitcoin's strong monetary growth, it is likely that this turbulent situation will support Bitcoin prices when the Fed eventually cuts interest rates – likely to a greater extent and later than expected.

But when that will come is anyone's guess.

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