Crypto Market Braces for Impact as Top Economist Downplays Fed Rate Cut
The crypto market is on high alert as Stephen Moore, a renowned economist and former Federal Reserve nominee, has downplayed the potential impact of the upcoming interest rate cut by the Federal Reserve. This development comes as Bitcoin and other top altcoins experience a surge in price, with Bitcoin trading at $112,645 at press time, up by 3.7% from its lowest level this month.
The crypto market has been closely watching the Federal Reserve’s moves, with Jerome Powell’s recent statement at the Jackson Hole Symposium hinting at a possible rate cut in September. However, Moore argues that the cut may not have a significant effect on the economy, and by extension, the crypto market. He believes that the Federal Funds Rate, which is the main interest rate set by the Fed, has become largely irrelevant as banks no longer use it.
Understanding the Interest on Reserves (IoR)
Moore suggests that the Fed should instead focus on cutting the Interest on Reserves (IoR), which currently stands at 4.4%. The IoR is the interest earned by banks for storing money at the Federal Reserve, with a total of $3.5 trillion in reserves. Last year, banks earned approximately $186 billion from the IoR. By cutting the IoR, the Fed could potentially stimulate the economy and have a more significant impact on the crypto market.
The other potential risk is that the Federal Reserve may opt for a hawkish interest rate cut in September, where it cuts rates but delivers a restrictive outlook on monetary policy. This could be due to mixed economic signals, including better-than-expected GDP data and inflation remaining above the Fed’s target of 2.0%.
ETF Approvals: A Key Catalyst for the Crypto Market
The main catalyst for the crypto market will be the upcoming ETF approvals by the Securities and Exchange Commission (SEC). The agency has delayed most ETF approvals, including those for popular tokens like Solana (SOL) and Ripple (XRP), to October. The Paul Atkins-led agency is likely to move ahead and accept or reject these ETFs, with Polymarket odds indicating a high probability of approval for top ETFs, including Dogecoin, Solana, Hedera Hashgraph, and XRP.
Current data indicate a strong demand for altcoin ETFs, as evidenced by the surging inflows into the Ethereum ETF. Other futures-based altcoin funds like XXRP, SSK, and UXRP have also seen substantial inflows a few months after their launch. As the crypto market waits with bated breath for the Fed’s decision and the SEC’s ETF approvals, investors are advised to stay informed and adapt to the changing market landscape.
For more information on the crypto market and the potential impact of the Fed’s rate cut, visit https://crypto.news/bitcoin-and-the-crypto-market-braced-on-the-fed-cuts/
