Federal Reserve Expected to Reduce Interest Rates as U.S. Government Shutdown Persists
The ongoing U.S. government shutdown significantly heightens the likelihood of the Federal Reserve cutting interest rates, positively impacting cryptocurrency markets.
The U.S. government’s economic data blackout is approaching its 23rd day due to the shutdown, which has resulted in the absence of crucial reports, including the September jobs figures.
Furthermore, the Federal Reserve has lost access to critical private jobs data from ADP, a source for 20% of private workers, as reported by both the WSJ and Kobeissi Letter.
“The Fed must lean even more dovish as the government shutdown continues, and they must cut rates,” the statement continued. “In fact, odds of a 50 basis point rate cut by year-end are surging.”
Impact On Crypto
The Fed will likely continue its aggressive rate cuts amid the data blackout and concerns of stagflation due to fears of being ’too late.'
CME futures markets indicate a 96.7% probability of a 25 basis point rate cut at the FOMC meeting on October 29. The likelihood of an additional 0.25% cut in December has surged to 96.5%, and nearly 60% chance exists for a third cut in January.
When the Fed cuts rates, traditional safe assets like savings accounts and Treasury bonds yield lower returns, making riskier investments like cryptocurrencies more appealing. Investors seeking higher returns are inclined to invest in crypto when interest rates are minimal elsewhere.
Rate cuts also lead to cheaper borrowing, injecting more liquidity into the financial system.
“Many traders look back at positive Q4 performance, anticipating repetition, so they buy, and the price goes up,” said analyst Cryptobirb. “All in all, the recent leverage flush crisis shouldn’t cancel year-end run.”
Economist Raoul Pal explained that the government shutdown has interrupted the drain of the Treasury General Account (TGA) and reversed liquidity, hinting that this situation will eventually pass.
Markets Begin to Consolidate
The cryptocurrency market has remained relatively stable over the past day, with total capitalization at $3.75 trillion. Bitcoin has fluctuated around the $108,000 support-turned-resistance level and has struggled to rise above it.
Ether prices struggle to surpass $4,000 after dipping to $3,700, while altcoins continue to decline slowly.
