The US Federal Reserve Open Market Committee's decision on interest rates in September was fully expected, as the FOMC kept rates at the current level of 5.25% to 5.5%. As also expected, the committee indicated that there could be another rate hike this year, and Chairman Jerome Powell insisted โ as usual โ in his September 20 press conference that the task of returning inflation to target of 2% from the Federal Reserve โis not an easy task.โ โThis is how it is done.โ
What was more surprising, however, is the fact that the Federal Reserve raised its long-term forecast for the federal funds rate, which it now believes will be at 5.1% by the end of 2024, up from the prediction of June 4.6%. before falling to 3.9% at the end of 2025 and 2.9% at the end of 2026. These figures are notably higher than previous forecasts and indicate a โhigher for longerโ scenario for US interest rates which not many market participants expected.
As such, we saw the markets pull back slightly, with the S&P 500 trading down 0.80% shortly after the announcement, followed by the NASDAQ, which fell 1.28%, a big drop for these major indices. Cryptocurrency markets also responded negatively, with Bitcoin (btc) falling below $27,000 and Ether (ETH) falling almost 2% to just over $1,600 shortly after Powell concluded his press conference.
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Ultimately, the data shows that the U.S. economy is returning to a state we haven't seen since before the 2008-09 financial crisis, a state in which economic growth and inflation remain relatively consistent. A US interest rate of around 4% on average over three years would be no surprise in this old world, nor would annual inflation above 2%.
The problem is that investors have become addicted to central banks pumping fast, free money into our economies to combat simultaneous crises. Now, as investors, we have a mindset where strong economic growth and stable inflation are interpreted as bad news, and the crypto markets seem to feel the same. This is particularly interesting considering that Bitcoin was founded during the financial crisis in direct criticism of the lax monetary policy decisions of the Federal Reserve, the Bank of England and others.
What now seems evident is that we cannot rely on central banks to deliver our investment mandates. Rather, we must focus more closely on the actual health of companies and the utilities, products and services they offer to their customers. In the crypto world, we will have to focus carefully on the viability of the crypto ecosystem and what it can offer its users as an alternative or complementary financial market.
In the short and medium term, of course, this means that we will all be sitting around waiting for the United States Securities and Exchange Commission to rule on the Wobbly Pile of Bitcoin Spot ETF Applications on your desk, presented by the world's largest asset managers.
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Franklin Templeton, one of the oldest asset managers in the US, has joined BlackRock, Fidelity, Invesco and others in the race to launch a massive market fund for the world's largest cryptocurrency. If even one is approved, this will truly mark Bitcoin's induction into the global asset hall of fame, and we can expect the cryptocurrency to join portfolios around the world as an alternative investment in the next bull market. However, if the SEC favors one industry giant over another, we can predict a lot of uncomfortable dinners on the Upper East Side.
If the SEC stays true to form and does not approve any of these requests, Bitcoin and other cryptocurrencies will remain marginal assets. That doesn't mean they won't find new price drivers and return to previous all-time highs. But we certainly won't see much action in the crypto markets until this issue is resolved one way or another.
Likewise, the FOMC decision and Powell's comments indicate that we will not see much enthusiasm on the macroeconomic side in the foreseeable future either. But if the US and global economy return to something resembling the old normal (uncharted territory for any investor under 40), it could well be exactly what the world, and even the cryptocurrency markets, need.
Lucas Kieli is Chief Investment Officer at Yield App, where he oversees investment portfolio allocations and leads the expansion of a diversified range of investment products. Previously he was chief investment officer at Diginex Asset Management and senior trader and managing director at Credit Suisse in Hong Kong, where he led QIS and structured derivatives trading. He was also head of exotic derivatives at UBS in Australia.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
