Cryptocurrency market braces for volatility as Fed signals delay in rate cut

Cryptocurrency markets have long been trying to seize a chance on an upward trajectory. However, since the Bitcoin ETF was approved, the world of digital assets has become severely range bound. An event that may have brought some peace of mind to the crypto market was the US Federal Reserve's interest rate decisions. But the hawkish tone of various Fed officials suggests that cutting rates may take longer than expected. In a recent development that pushes the Fed to cut rates, non-voting members of the Federal Open Market Committee have taken a bearish stance on the future of interest rates.

Susan Collins suggests delay in Fed rate cut

Boston Fed President Susan Collins said she needed more evidence that inflation was returning to the Fed's 2% target before cutting rates, Yahoo Finance reported. However, he added that a rate cut could happen “later this year.” “We need to see more evidence before we consider adjusting our policy stance,” Collins said in a speech in Boston. Mr. Collins is a non-voting member of the Federal Reserve's Federal Open Market Committee, 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% to 5.5%. It was also unanimously resolved to maintain the interest rate paid on reserve balances at 5.4% from February 1, 2024. According to the CME FedWatch tool, the market had priced in a nearly 96% chance that the Fed would keep interest rates unchanged.

Collin's comments echo those of other Fed officials, particularly Chairman Jerome Powell. In his speech, Chairman Powell suggested that the economic situation itself does not pave the way for a rate cut anytime soon. However, he said global markets, including the crypto industry, expected the Fed to signal a rate cut as early as March of this year.

Economic indicators suggest a delay in rate cuts

Various U.S. indicators solidify the idea that the Fed may be right in its decision not to start cutting rates right away. According to Deloitte, the United States saw a surprising and unexpected jump in employment in January. Current data suggests that job growth is much faster than expected.

In a similar vein, the ISM Manufacturing PMI Index for January came in at 49.1%, beating Wall Street expectations of 47.2%. This figure also rose from 47.1% last month. The reading was the highest since October 2022, although it fell short of the 50 reading needed to indicate a rise in the sector.

The trajectory of the Fed's interest rate decisions is not based solely on these two data points, but they significantly fuel concerns that it will take longer to cut rates in the future.

Cryptocurrency markets face volatile trading as Fed concerns loom

The Federal Reserve's interest rate decisions have long been a key metric used by investors to evaluate investments. Lower interest rates often reduce the value of government securities and make assets such as cryptocurrencies more attractive. The outlook for a rate cut has fluctuated in recent months, according to The New York Times. After the Fed signaled in December that a rate cut could possibly occur sometime in 2024, futures markets began to expect rate cuts to begin at the Fed's March meeting.

However, the latest developments are preparing financial markets for future volatility. Any hint of future interest rate cuts by the Fed could increase investors' risk appetite, which in turn could increase trading volume in the crypto market. But for now, in the absence of any positive leads, crypto market trading appears to be heading towards chaos.