Fed Could Cut Rates and Bitcoin Gains

The U.S. central bank, aka the Federal Reserve, is due to release its latest interest rate decision in a little over a week. Upside expectations have been tempered somewhat in light of recent events at U.S. regional banks.

Cryptocurrency prices reportedly soared throughout the day as turmoil in the banking sector in the U.S. region continued and upside expectations were recalibrated.

“The probability that the target rate will not rise next week has increased from 0% on Sunday to 32% at 7 p.m.,” according to the CME’s FedWatch tool, as quoted by The Block.

The tool analyzes the likelihood of a change in Fed interest rates, as implied by 30-day fed funds futures pricing data.

“Given recent market events, it seems unlikely that the Fed will continue its aggressive pumping regime. Consensus is expecting a 25 basis point rally, but if banking problems persist, the Fed may decide to ease off entirely and stop pumping this month,” Matt Maximo and Michael Zhao write in Grayscale’s latest news.

“The recent collapse of two U.S. banks reminds us of the risks of fractional reserve banking and has the potential to drive further adoption of self-sovereign and decentralized Crypto assets such as Bitcoin and Ethereum,” the duo added.

Late Sunday, New York’s Department of Financial Services seized crypto-friendly Signature Bank in a move state regulators said was an effort to protect depositors.

In a separate statement, the U.S. federal banking regulator guaranteed full refunds to Silicon Valley and Signature Bank customers.

The Fed may cut rates

Maximo and Zhao are not alone. Analysts at Nomura agreed, even suggesting the Fed cut rates.

“In response to the looming risks to financial stability, we now expect the Fed to increase by 25 basis points at the March FOMC meeting, compared to our previous forecast of 50 basis points since February 24,” the analysts said. investment bank. . .

If the central bank includes further rate cuts in the dot plot, a 25 basis point rate cut does not appear to be a panacea for financial institutions.

“Markets are likely to price in further rate cuts quickly,” which could “reduce the risk of further rate cuts somewhat.” operating the bank, and reducing unrealized capital losses,” Nomura wrote in a note.

Nomura also expects the Fed to stop quantitative tightening.

“While the choice of deposits versus non-deposit investment vehicles such as money market funds (MMFs) is important for banks, ending QT will help maintain larger reserves than would otherwise be the case,” the analysts said.

Bitcoin traded higher throughout the day, according to Market Monitor.

The leading cryptocurrency by market capitalization rallied about 11 percent, retreating back above $24,000.

Ether was also higher, up 6% while trading in the $1,700 range, briefly breaking above that level for the first time since mid-February the previous day.

François Cluzeau, Flowdesk’s head of trading, told The Block: “The actions taken by the US authorities over the weekend appear to have been well received, with cryptocurrencies enjoying strong momentum throughout the day.”

Liquidity has suffered over the past few weeks, Cluzeau said.

“In a low-liquidity environment, price volatility can be much greater than in periods of high liquidity,” he said.

It was a mixed day for the listed lender despite steps to curb risks posed by Signature Bank and pledges to protect deposits.

JPMorgan fell 1.8%; then added 0.3% hours later. Bank of America shares fell 5.8% in trading on the day, but were up 1.4% after hours. First Republic was the most extreme case, plunging 61% before rising 16% after hours.

“The Fed cannot ignore the problems posed by a sharp rise in banking interest rates, nor can it trigger a financial crisis to bring inflation back to 2 percent,” said Ipek Ozkardeskaya, senior analyst at Swissquote, in a market note.

Ozkardeskaya continued that tomorrow’s U.S. inflation data is still important, but developments across the banking sector could overshadow the data.

The consensus forecast is for February’s annual inflation rate to be 6%, up 0.4% month-on-month. [ab]

Information source: compiled by 0x information from BLOCKCHAINMEDIA.Copyright belongs to the author, without permission, may not be reproduced

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