Economists overwhelmingly predict a 25 basis point Federal Reserve rate cut this month, with nearly all analysts expecting at least one additional cut before year-end. The consensus is driven by weak labor data and downward surprises in inflation metrics, with Deutsche Bank's Jim Reid noting that recent PPI data "was seen as giving the Fed more space to cut rates in the months ahead."
Federal Reserve Chair Jerome Powell has indicated the labor market is "softer than previously thought," necessitating a revisit of the balance between employment and inflation mandates. Market sentiment is heavily influenced by CME Group's FedWatch Tool, while analysts from UBS and Deutsche Bank emphasize the current dovish sentiment.
Historical patterns show that rate cuts typically boost liquidity and trigger risk asset inflows. Previous cuts in March 2023 and June 2024 resulted in short-term rallies in BTC and ETH. Experts like Arthur Hayes argue that "Fed easing always brings the animals back to the crypto yard," while Raoul Pal consistently highlights macro liquidity's role in crypto performance.
The anticipated monetary easing is expected to benefit cryptocurrencies through increased dollar liquidity, pushing investors toward yield-generating options like ETH staking and potentially boosting DeFi activity and stablecoin transactions.
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