Inflation in the United States shows signs of cooling, with the personal consumption expenditures (PCE) price index reaching 2.6% in the year through May. The Fed’s interest rate target is 2%, remaining unchanged at 2.7% through April.
Against this backdrop, strategist Morgan Stanley is betting that major US and European Union banks will cut interest rates in September.
The Fed may cut interest rates as inflation slows
Andrew Sheets, managing director at Morgan Stanley, said The bank sees a compound interest rate cut before the end of the summer. Sheets is betting that labor market and inflation data cause US and EU central banks are likely to loosen their monetary policies.
Notably, the European Central Bank is recommended continue batch interest rate cuts after the first time in about half a decade. Board Member Olli Rehn forecast will have at least two more cuts this year.
In contrast, US inflationary pressures have prevented the Fed from following suit. However, the core PCE value has raised hopes that the Fed may start cutting interest rates. Analysts previously thought the Fed could wait until December or not cut at all in 2024.
Recently, Atlanta Federal Reserve Chairman Raphael Bostic Satisfied show possibility of cutting interest rates in the fourth quarter.
Trump’s reelection raises potential economic risks
In one letter Recently, 16 economists expressed concerns about re-election Donald Trump and the economic impact of this.
“We believe that a second Trump term will have a negative impact on America’s economic standing on the international stage and destabilize the domestic economy.”
They argue that Trump’s “fiscally irresponsible budget” could cause inflation that is already slowing. Economists, on the other hand, praise the economic initiatives of President Joe Biden, believe investments your will also reduce long-term inflationary pressures.
Bitcoin is restrained in a narrow range despite interest rate cut hopes
Lower interest rates typically benefit industries and technology companies as money becomes less valuable. Furthermore, falling interest rates make Treasury bills and bonds less attractive.
At the same time, the market witnessed an increase in investor risk appetite. This change usually absorbed by alternative assets like Bitcoin. This time, however, the news failed to spur investor capital into Bitcoin as the price was limited between $60,000-$62,000.
Source: TradingView
The first reason for this lackluster performance was the weak PCE figures. In addition, the inflation figure fell 0.1% year-on-year through May.
Looking at year-on-year data, prices rose 2.6% from May last year to May this year, reduce slightly compared to the 2.7% annual increase recorded in April. However, the PCE price index did not change Monthly.
Additionally, the US dollar fell in the week ending June 27. However, its year-to-date gain was more than 4% at the time of writing. A sluggish dollar could benefit Bitcoin, but a broader market strategy is less likely to make that quick impact.
While a rate cut due to low inflation is the expected target, the uncertainty of the US election and the performance of the DXY index will also impact Bitcoin.
Rate cuts could benefit BTC in the medium term, But This correlation appears to have become non-linear as the market matured.
Itadori
According to Cryptopolitan
