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Goldman Sachs’ recently adjusted forecast for Federal Reserve interest rates could provide a massive spike in Bitcoin’s market.
The leading bank adjusted its forecast, predicting that the United States Federal Reserve may cut interest rates twice in the next two years. This adjustment could align with the next Bitcoin ($BTC) halving event scheduled for April, potentially serving as a massive catalyst for the cryptocurrency market.
The correlation between interest rates and investor risk appetite is worth paying attention to, and Goldman Sachs initially foresaw the first Fed rate cut occurring by December 2024. According to Reuters, the timeline has now been expedited to Q3 of 2024. The bank anticipates these two rate cuts to bring interest rates to 4.875% by the end of 2024, down from the previous forecast of 5.13%.
Investors anticipate a more resilient job market won’t deter the Fed from implementing rate cuts. They expect the first cut to happen by Q1 of 2024, two quarters earlier than initially predicted by Goldman Sachs.
Goldman Sachs noted that a healthy growth and labour market data might suggest that immediate rate cuts aren’t necessary, but better-than-expected inflation data indicates that normalisation cuts might occur earlier than anticipated. The federal funds rate, which guides U.S. bank lending, is currently set within a range of 5.25% to 5.50%, determined by the Federal Open Market Committee.
Changes in Fed interest rates tend to have a direct impact on the cryptocurrency market, influencing investor behaviour. A drop in interest rates makes borrowing more affordable which creates a higher risk appetite among traders in both the broader economy and financial markets. Conversely, interest rate hikes are often implemented to control inflation and diminish the purchasing power of fiat currencies, leading to reduced demand for volatile assets like cryptocurrencies.
Federal Reserve interest rate adjustments can shift investor preferences, with traditional asset classes such as bonds becoming more attractive due to their stable returns. The Fed commenced tightening interest rates in March 2022 in response to rising inflation, marking a departure from the near-zero rates earlier. However, the expected rate cuts in 2024, coupled with the Bitcoin halving event in April, could act as catalysts for a post-halving price rally in the crypto market.