In a surprising move, the U.S. Federal Reserve (Fed) has called for an emergency meeting today. This meeting is to look at interest rates again as global markets are facing big problems. Experts think the Fed will cut rates by 0.5% after the meeting. The Japanese yen (JPY) has dropped by 13%, and the Korean and Taiwanese markets are down by almost 10%. Bitcoin’s price has fallen by 18% in the last five days. Meanwhile, the S&P futures have gone down by 4%. The U.S. Fed has called this meeting because of market uncertainty.
The situation has caused major worries, with the Federal Reserve expected to cut interest rates by 0.5% after the emergency meeting. CNBC host Ran Neuner called this a critical moment: “This is the moment we have been waiting for.” He added, “The Fed will need to react quickly to avoid a meltdown that could make 2008 look minor. It’s an election year. I’m expecting emergency action.”
The financial trouble seems to be due to the reversal of the Japanese cash and carry trade, causing panic in global markets. The chance of a September rate cut is now 100%, showing the urgency of the situation. Market experts suggest that cutting interest rates could help. In the past, Fed rate cuts have been used to steady markets, especially during the 2007-2008 financial crisis. “Interest rate cuts saved the housing market in 2007,” noted one expert.
The Federal Reserve’s quick response is crucial to prevent more economic problems. The emergency meeting highlights the seriousness of the current market conditions and the need for immediate action. However, Bitcoin critic and well-known economist Peter Schiff expects a recession if the U.S. Fed cuts interest rates.
Bitcoin as a Hedge Against Economic Instability
Goldman Sachs Group Inc. has increased the chance of a U.S. recession in the next year to 25% from 15%, according to a report by its economists led by Jan Hatzius. Despite the higher risk, the report highlights several reasons not to worry about an economic slump even with a rise in unemployment.
The report, released on Sunday, states that the overall economy still looks “fine.” The economists mentioned that there are no major financial problems and the U.S. Fed has plenty of room to cut interest rates if needed.
Goldman Sachs’ forecasts for Federal Reserve actions are more cautious compared to those of JPMorgan Chase & Co. and Citigroup. Hatzius’s team expects the central bank to lower its benchmark interest rate by 25 basis points in September, November, and December.
“Our forecast assumes that job growth will improve in August and the FOMC will see 25bp cuts as enough to address any downside risks,” the Goldman Sachs economists said. They added, “If we are wrong and the August employment report is as weak as July’s, then a 50bp cut would be likely in September.”
These economic forecasts and potential rate cuts affect the crypto market, including BTC and other digital assets. Historically, U.S. interest rate cuts have been positive for risk-on assets, including cryptocurrencies. Lower interest rates make traditional savings less attractive, leading investors to seek higher returns in alternative assets like Bitcoin.
Additionally, Bitcoin is often viewed as a hedge against inflation and economic instability. If the Federal Reserve makes aggressive rate cuts, it could indicate concerns about economic health, potentially driving more investors toward BTC as a store of value. However, market observers remain cautious due to warnings from Schiff and other experts.
SEE ALSO: Could Bitcoin Price Reach $50k as Speculation of Fed Rate Cut Grows?
