Author: Lucas Kiely, Cointelegraph; Translation: Songxue, LianGuai
The Federal Open Market Committee’s interest rate decision in September came entirely as expected, with the FOMC maintaining rates at levels between 5.25% and 5.5%. As anticipated, the committee indicated the possibility of further rate hikes this year, with Chairman Jerome Powell reiterating at the press conference on September 20th that the task of bringing inflation back to the Fed’s 2% target had become “impossible.”
However, what was more surprising was the Fed’s upward revision of its long-term forecast for the federal funds rate. They now believe that by the end of 2024, the federal funds rate will reach 5.1%, higher than the 4.6% forecast in June. It is expected to decline to 3.9% by the end of 2025 and to 2.9% by the end of 2026. These figures are significantly higher than previous forecasts, indicating a “prolonged increase” in US interest rates that many market participants did not anticipate.
As a result, we saw a slight market correction, with the S&P 500 index dropping 0.80% shortly after the announcement, followed closely by the Nasdaq index, which fell 1.28% – both indices experienced significant declines overall. The cryptocurrency market also reacted negatively, with Bitcoin falling below $27,000 shortly after Powell’s press conference, and Ethereum dropping nearly 2% to just above $1,600.
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Ultimately, the data shows that the US economy is returning to a state not seen since the 2008-09 financial crisis, where economic growth and inflation remain relatively consistent. In this old world, it is not surprising that the average interest rate over three years in the US is around 4%, and an inflation rate exceeding 2% is also not surprising.
The problem lies in the fact that investors have become addicted to central banks rapidly injecting free money into our economy to deal with simultaneous crises. As investors, our mindset now interprets strong economic growth and stable inflation as bad news – and it seems that the cryptocurrency market feels the same way. Considering that Bitcoin was created during the financial crisis as a direct critique of the loose monetary policy decisions made by the Fed, the Bank of England, and other institutions, this is particularly interesting.
Federal funds rate from January 2000 to August 2023. Source: Federal Reserve Board.
It is now evident that we cannot rely on central banks to provide our investment directives. Instead, we must closely monitor the actual health of companies and the products and services they offer to customers. In the crypto world, we must carefully consider the feasibility of the crypto ecosystem and what it can provide to users as an alternative or complement to the financial market.
Of course, in the short to medium term, this means that we will all be waiting for the U.S. Securities and Exchange Commission to make a ruling on its pile of Bitcoin spot ETF applications.
Franklin Templeton is one of the oldest asset management companies in the United States. It, along with companies such as BlackRock, Fidelity, and Invesco, is vying to launch a public market fund for the world’s largest cryptocurrency. If one of these applications is approved, it will indeed mark Bitcoin’s entry into the global asset hall of fame, and we can expect cryptocurrencies to be added to investment portfolios around the world as an alternative investment for the upcoming bull market.
If the U.S. Securities and Exchange Commission remains unchanged and does not approve any of these applications, Bitcoin and other cryptocurrencies will still be marginal assets. This does not mean that they will not find new price-driving factors and return to their previous historical highs. But until this issue is somehow resolved, we certainly won’t see much action in the cryptocurrency market.
Similarly, the decisions of the Federal Open Market Committee and Powell’s comments suggest that we will not see too many exciting developments in the macroeconomy in the foreseeable future. But if the U.S. and global economies do return to the old normal (which is unfamiliar territory for investors under the age of 40), it is likely to be exactly what the world, and even the cryptocurrency market, needs.
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