Goldman Sachs Predicts First Fed Interest Rate Cut in Q3 2024 – How Will Crypto Markets React?

Last updated: December 10, 2023 22:52 EST
. 2 min read

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Banking giant Goldman Sachs projects two interest rate cuts in the United States by the Federal Reserve in 2024 with the first to be announced in the third quarter.

A recent Reuters report states Goldman Sachs sees two rate hikes next year citing cooling inflation after it previously predicted interest rate cuts by December relying on present data available at the time.

To the crypto market, this pivotal forecast amid a bullish drive in the market as the prices of top assets including Bitcoin (BTC) and Ethereum (ETH) fueled to a yearly high this past week.

The Federal Reserve’s rate is at 5.25% although several traders anticipate a decline as inflation cools implying a potential rate of 4.875% in the country and several other jurisdictions.

Jan Hatzius, a lead financial analyst at Goldman Sachs, wrote in the analysis cited by Reuters that inflation cuts may come later as the labor market comes in stronger than expected in recent weeks.

“Healthy growth and labor market data suggest that insurance cuts are not imminent… But the better inflation news does suggest that normalization cuts could come a bit earlier.”

Although consumer prices were relative in most markets, the banking giant believes some participants may push for more cuts while others will hold still to avoid encouraging rapid price movements.

“Our inflation forecast is a touch lower, but FOMC (Federal Open Market Committee) participants will likely still prefer to err on the side of being less optimistic.”

Crypto market bullish reaction to rate cuts

Traditionally, interest rate hikes due to high inflation take away the uptick in growth of the market as investors tend to withdraw funds from riskier assets when borrowing becomes more difficult.

On the other hand, when the Feds and other banking authorities announce a rate cut as inflation plummets, borrowing for small-scale and larger investors becomes easier spurring a new cycle of funds in the market.

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This can be seen after the 2021 bull run when global inflation and interest rate hikes tightened markets causing a rapid fall in the prices of several digital assets and pushing traders and miners into the woods.

Although inflation and wider economic factors led to a crash in asset prices, the digital asset downturn recorded in 2022 was also due to internal market implosions like the fall of Terra and FTX in November.

Bulls have taken the wheel?

It could be seen that anytime rates fell, slight growth was recorded in the total market capitalization, and with a renewed surge in prices as BTC moved past $41,000 bulls are keen on setting the tone for the next halving.

In recent months, institutional investors have renewed their appetite in the market with an expected approval of a spot Bitcoin ETF by the Securities and Exchange Commission (SEC).

With a rising total assets under management (AUM) over $45 billion, several analysts suggest the market projection points upward as the ETF approval looms.