cpeditor
- A series of weaker economic reports has led Goldman Sachs to downgrade the likelihood of a Federal Reserve rate hike in September, potentially creating a more supportive environment for bitcoin.
- Goldman now says a September increase is “very unlikely,” which could offer a boost to bitcoin as the cryptocurrency continues to trade within a tight range.
- Bitcoin was recently around $63,500, up about 1% since midnight UTC. It has remained between $62,000 and $66,000 for more than a month.
- Goldman’s change in outlook follows softer retail sales and employment data, combined with signs of easing inflation, according to Goldman Chief Economist Jan Hatzius, as reported by Bloomberg.
- Hatzius said the bank expects inflation to improve further as the year progresses instead of accelerating again. He also argued that financial markets continue to price in a more hawkish Fed policy outlook than Goldman considers justified.
- Interest rates influence borrowing conditions and the amount of liquidity circulating through financial markets, making monetary policy an important driver for risk assets such as bitcoin. Higher rates generally create pressure on cryptocurrencies, as demonstrated during the Fed’s aggressive tightening cycle in 2022.
- Lower rates tend to encourage liquidity and risk-taking, with the crypto market’s recovery after the Fed’s March 2020 COVID-19 response providing a notable example.
- CME FedWatch data showed a 30.6% probability of a 25-basis-point rate increase at the September meeting, which would move the target range to 3.75%-4%.
- Most traders expect the Fed to maintain its current rate, while expectations for a September hike have declined following recent inflation data that showed price pressures easing as economists had predicted.
