Expert Explains Why Fed Rate Cuts Are Not Imminent — Should Bitcoin Faithfuls Hold On?

Bitcoin and the broader crypto market have failed to find relief despite favorable Core Personal Consumption Expenditures (PCE) data in the United States. According to data from CoinGecko, the total cryptocurrency market capitalization dipped by nearly 5% on Friday, May 30th.

However, an industry expert has explained why the US macroeconomic landscape might not get better for the crypto and other risk asset markets over the next few months. This interesting projection suggests that the future looks a tad uncertain for the Bitcoin price and the rest of the cryptocurrency market.

Why Fed Rate Cuts Are Not Coming Soon

In a new post on the social media platform X, Jim Bianco explained why he expects the United States Federal Reserve not to cut the interest rate over the next three Federal Open Market Committee (FOMC) meetings. According to the investment research expert, the rationale behind the reduced likelihood of a rate cut is the rebounding US economy.

Bianco mentioned that it would be reckless for the US Fed to cut interest rates with the economy recovering strongly and prices rising. The macroeconomics researcher said that slowed imports — due to increased trade tariffs — have been positive for the nation’s gross domestic product (GDP).

Bianco further explained: 

Imports are “lost GDP.” It is a product manufactured outside the United States. Therefore, spiking imports, which cause a larger trade deficit, are a drag on GDP. It was the biggest reason the Q1 GDP was negative (revised yesterday from -0.3% to -0.2%). Liberation Day dramatically slowed imports, and the trade deficit reversed. This is boosting Q2 GDP. It is now estimated to be 3.8%, and could go higher as May was another slow import month.

The financial market expert also highlighted the resulting tariff-driven inflation happening in the US and how it could drive the 2.3% year-on-year CPI higher. Ultimately, Bianco believes that the probability of a Fed rate cut is extremely low, as the opposite would be a reckless move.

How Does This Impact The Bitcoin Market?

Typically, lower interest rates mean that riskier assets, like crypto and stocks, are more attractive investment options, as the yields on traditional assets (like treasury bonds) diminish. As seen in the past years, the Bitcoin market tends to rally whenever the US Fed cuts interest rates.

Moreover, Fed rate cuts often lead to a weaker US dollar, which could mean a higher value for assets priced against the United States currency. Hence, some investors use cryptocurrencies like Bitcoin to hedge against fiat currency debasement.

Related Reading: Fresh Capital Keeps Pouring Into Bitcoin – Matching 2021 Bull Market Inflows

In essence, rate cuts by the US Federal Reserve are generally bullish for Bitcoin and crypto, as they push investors to alternative markets for higher gains. However, it is important to consider the state of the economic environment before the rate cuts, as a positive macroeconomic landscape is often more favorable for the riskier assets.

It is also worth mentioning that the absence of rate cuts over the next three months might not necessarily have the opposite bearish effect on the Bitcoin market.