Bitcoin Price Drops to $58K Amid Federal Reserve’s Divergent Rate Cut Forecasts

The upcoming week appears to be one of uncertainty as the market awaits the Federal Reserve’s decision on interest rates. This uncertainty has had an impact on Bitcoin’s price movement, causing a pullback from its recent highs above $60,000.

It is widely anticipated that the Federal Reserve will announce an interest rate cut on September 18, marking the beginning of an easing cycle that historically has supported risk assets like Bitcoin.

Traders are currently divided on the size of the expected rate cut, setting the stage for potential volatility in financial markets post the Fed’s decision. The Fed funds futures indicate a 50% chance of a 25 basis points (bps) rate reduction to the 5%-5.25% range, with a similar probability assigned to a larger 50 bps cut to the 4.7%-5% range.

Bitcoin’s upward momentum has slowed down amidst the uncertainty surrounding the rate cut. The cryptocurrency, which had risen from lows of $52,530, has retraced from $60,660 to $58,700 at the time of writing.

Market strategist Marc Chandler highlighted the unique level of uncertainty surrounding the Fed meeting, with the market evenly split between a 25 bps and 50 bps rate cut. Chandler expressed concerns that a 50 bps cut might not bode well for risk assets, signaling increased worry about the economy.

Some analysts have cautioned that a 50 bps rate cut could indicate panic, leading to reduced demand for riskier assets, including cryptocurrencies. The likelihood of a 50 bps cut rose following discussions on the size of the rate cut in various publications, with a few Fed policymakers hinting at a larger cut, which boosted risk assets sentiment.

Chandler also mentioned the market’s shifting expectations, initially leaning towards a 25 bps rate cut before speculation emerged about a potential 50 bps cut. Traders are now contemplating the possibility of multiple rate cuts in the remaining meetings of the year, alongside monitoring the Fed’s economic and interest rate projections.

Looking ahead, the market is pricing in a sub-3% Fed funds target by the end of next year, while the unemployment rate remains around the Fed’s long-term equilibrium level. The evolving economic landscape and the Fed’s future decisions will be crucial factors to watch in the coming months.