Interest Rate Cuts Are on the Horizon, Boosting Crypto Prospects

The federal funds rate is expected to decline further. The investing landscape underwent a significant shift yesterday, with Donald Trump's re-election as president of the United States triggering a broad-based rally in risk assets. The major indexes, such as the S&P 500 and Nasdaq Composite, as well as cryptocurrencies, saw substantial gains. One of the primary reasons for this surge was the lack of investment exposure among momentum-based hedge funds, which had reduced their risk exposure due to the uncertainty surrounding the election outcome. However, more significant factors contributed to the rally. During his previous term, Trump advocated for reduced government intervention and regulatory oversight, which is likely to continue. This approach is expected to have a positive impact on the technology industry, including the digital assets sector. Additionally, Trump has consistently supported a weaker dollar, which he believes will drive demand for U.S.-made goods and stimulate the domestic economy. To achieve this, he is likely to pressure the Fed to lower the federal funds rate, making borrowing cheaper and increasing the money supply. This, in turn, should boost demand for dollar-based risk assets, including cryptocurrencies. The author, with over two decades of experience in the financial industry, has developed a habit of following the 'bread-crumb trail' of economic data to anticipate central bank policy decisions. By analyzing various indicators, such as employment, inflation, and economic output, it becomes apparent that the economy is stabilizing, and the Fed is likely to cut interest rates further. Recent data shows that job gains have returned to pre-pandemic levels, inflation has receded, and economic growth is steady. Based on these indicators, the author believes that the Fed can cut interest rates by another 280 basis points before borrowing costs weigh on inflation growth. As monetary policy eases, it is expected to support stability in economic growth and underpin a steady rally in crypto investments like bitcoin and ether.