Federal Reserve Governor Michelle W. Bowman recently announced that it is now premature to consider a rate cut in 2024.
This statement comes at a time of heightened sensitivity in both traditional and crypto markets. The situation is further intensified by the expectation of the release of key economic data later this week.
In her statement, Bowman emphasized that despite modest progress in managing inflation in the United States, it remains elevated and is facing various risks. This position corresponds to the Federal Reserve’s cautious approach to monetary policy in an uncertain economic environment. She also stressed the importance of the Federal Reserve maintaining its independence and nonpartisan position in decision-making processes.
These remarks precede the second revision of US GDP data for the first quarter, which will be published on Thursday, June 27. Data on Personal Consumption Expenditures (PCE) in the US is expected on Friday.
Bowman noted, “However, given that the year-on-year core inflation on consumer prices through May this year stands at 3.8%, I expect inflation to remain high for some time.” She also suggested a potential deviation from global trends in monetary policy.
Federal Reserve monetary policy is putting pressure on market conditions, including cryptocurrencies. Higher interest rates usually strengthen the US dollar, which can impact the prices of assets, including cryptocurrencies. Conversely, lower interest rates usually encourage increasing asset prices as investors seek higher returns in riskier markets.
Bowman’s assertion that a decrease in interest rates is unlikely until 2025 suggests that borrowing costs will remain relatively high, potentially hindering investment flows into the crypto market. This scenario could exacerbate the recent crypto crash, as investors may prefer safer and more profitable assets over volatile cryptocurrencies.
Lately, the crypto market has been turbulent, with Bitcoin (BTC) recently dropping below $59,000 amid significant sell-offs. Factors contributing to this include recent BTC sales by the German government and the expected $9 billion repayment to investors from Mt. Gox, further worsening market sentiment.
However, the lack of expected interest rate cuts has fueled concerns about prolonged market turmoil. With tightening traditional financial conditions, appetite for riskier assets like cryptocurrencies often decreases.