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Key Takeaways
The US Federal Reserve cut rates by 0.25% but risk assets, including Bitcoin, fell on the news.
A weaker labour market, persistent inflation, and political pressure have clouded confidence in the Fed’s direction.
With a government shutdown and murky data, investors are staying cautious until the economic picture clears.
The macroeconomic landscape has heavily influenced in the crypto markets this year. Trump tariffs, sticky inflation, geopolitical conflict – it feels like we’ve hardly had a chance to catch our breath and let the market play out on its merits.
This is the reality of an increasingly capitalised market with strong institutional ties. As the big dogs like BlackRock and even JPMorgan increase their digital asset exposure, it becomes less likely we experience the brutal, volatile crypto winters of times past.
But, alongside greater maturity and stability comes greater vulnerability to the same forces that move equities and bonds.
With that in mind, it stands to reason that this week’s announcement that the US Fed is cutting interest rates again would cause a move to the upside.
But the market hasn’t played out like this – so what gives?
Are rate cuts always bullish?
As a quick refresher, interest rate cuts often correlate with a spike in the value of equities and crypto. This is because the cost of borrowing money is cheaper, leading to greater liquidity and cash flow to invest in risk-on assets like digital currencies.
However, the macroeconomic landscape isn’t as simple as: cut rates = win.
It’s important to remember the context of cutting rates in the first place. This is a quantitative easing measure typically used by governments to relieve financial pressure on businesses and residents.
When rate cuts are deployed to stimulate growth — either in response to slowing GDP or as a pre-emptive move to preserve momentum — it signals that the economy isn’t unfolding exactly as policymakers hoped.
Though growth in the US is currently tracking above expectations, what makes this particular rate cut even murkier is the government shutdown.
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Pundits are calling this week’s 0.25% cut a ‘blind’ decision, as the Feds had to move without key economic data. No growth, no unemployment and no inflation.
Walking the tightrope
What makes things even trickier is that the US labour market was showing signs of weakness, while inflation was still proving persistent.
While rate cuts can stimulate the economy, worsening labour conditions and renewed demand can quickly lead to cost-push inflation.
It’s quite the tightrope the Fed is walking. Avoid a recession at all costs – which may require dropping the cash rate – while ensuring unemployment remains low and inflation is kept at arm’s length.
Then, just for fun, add on the pressure from US President Donald Trump to rapidly lower rates, and the macro situation quickly becomes complex.
The long game
To make matters even more uncertain, during Powell’s public address following the Fed’s decision, he made it clear that a December cut was far from a done deal.
The October cut, as well as December’s, was likely already priced into the market. So, given the economic murkiness in the US, some near-term outflows from BTC and other cryptocurrencies are to be expected.
However, with the crypto market still sitting firmly in ‘Fear’ territory, and investors still figuring out how to navigate the lack of economic clarity, it means there is plenty of upside for digital assets as we move toward the end of the year.
When (if?) the US Government roars back to life, and economic data starts flowing back in, better-than-expected figures could jolt the cryptosphere back into positive action.
Regulatory frameworks are being built, the industry is expanding rapidly and adoption among institutions and corporate entities is skyrocketing.
The stage is set for crypto to capitalise – but the question remains: Will the economy play nice?
Swyftx Flows
The buy-to-sell ratio for unique Swyftx orders is nominally >$20,000 AUD (rolling data over the last 7 days, captured at 09:00 am AEST).
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