Federal Reserve Governor Michelle W. Bowman recently announced that considering a rate cut in 2024 is premature. This statement comes during a period of heightened sensitivity in both traditional and crypto markets. The situation is further intensified by the anticipation 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 faces various risks. This position aligns with the Federal Reserve’s cautious approach to monetary policy in an uncertain economic environment. She also highlighted the importance of the Federal Reserve maintaining its independence and non-political stance in decision-making processes.
These remarks precede the second revision of U.S. GDP data for the first quarter, which will be published on Thursday, June 27. Data on U.S. personal consumption expenditures (PCE) is expected on Friday.
Bowman noted, “However, given that the year-to-May measure of core consumer price inflation in the United States is running at 3.8%, I expect inflation to remain high for some time.” She also speculated potential divergence from global trends in monetary policy.
The Federal Reserve’s monetary policy exerts pressure on market conditions, including cryptocurrencies. Higher interest rates typically strengthen the U.S. dollar, which may impact the prices of assets, including cryptocurrencies. Conversely, lower interest rates usually encourage asset price increases as investors seek higher returns in riskier markets.
Bowman’s assertion that a reduction 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 downturn, as investors may prefer safer and more profitable assets over volatile cryptocurrencies.
The crypto market has been turbulent lately, 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 payout to Mt. Gox investors, further worsening market sentiments.
However, the lack of expected interest rate cuts fuels concerns about prolonged market turmoil. Tightening traditional financial conditions often diminishes the appetite for riskier assets like cryptocurrencies.