Today, the U.S. Federal Reserve huddled for an urgent meeting in response to the dramatic downfall of the Japanese markets. This unexpected development set off a global panic-driven selloff. Market experts foresee a rate decrease of 50 basis points (bps) in the aftermath of the meeting.
The 13% plummet in the Japanese Yen, and the near 10% falls in Korean and Taiwanese markets, demanded an urgent response. A resulting interest rate reduction by the Federal Reserve could drive investors towards Bitcoin, as historically such cuts have boosted risk-on assets such as cryptocurrencies. However, caution is advised as rate cuts could also signal economic instability, leading toward a potential recession.
Urgent Meeting Prompted by Worldwide Market Instability
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Triggered by an alarming 13% descent of the Japanese yen [JPY], as well as close to 10% falls in the Korean and Taiwanese markets, the U.S. Federal Reserve found it necessary to call an extraordinary meeting. Over the past five days, Bitcoin’s value took a substantial hit, with an 18% drop. At the same time, the S&P futures stumbled by 4%. Rising market instability demanded that the U.S. Federal Reserve convene an urgent meeting.
The Probable Outcome of the US Federal Reserve’s Emergency Meeting
In the face of the current unsettling market condition, the Federal Reserve is expected to reduce interest rates by a substantial 0.5% after the conclusion of this emergency meeting. This moment, according to CNBC host Ran Neuner, is a crucial one. He stated, “This is the moment we have been waiting for,” adding that swift and decisive Federal action is required to prevent a meltdown that could dwarf the 2008 crisis. This is particularly important given that it’s an election year.
The Driving Factor Behind the Global Market Turbulence
The sudden reversal of the Japanese cash and carry trade appears to be the primary driver of the financial unrest, causing wide-scale panic across global markets. Subsequently, the likelihood of a rate cut in September has shot up to 100%. This demonstrates the pressing need for prompt measures. Market experts suggest a reduction in the interest rate could provide some respite. These cuts have proven effective in times of market instability, particularly during the financial crisis of 2007-2008.
If the Federal Reserve resorts to aggressive rate reductions, it may signal concerns over the economy’s health. This could drive a larger number of investors towards Bitcoin, particularly as it is often envisaged as a hedge against economic instability. Nonetheless, investors are treading cautiously, heeding warnings from Bitcoin critic and noted economist Peter Schiff and other experts. Should the U.S. Federal Reserve indeed cut interest rates, Schiff has forewarned of a potential recession.
Crypto Assets’ Suspected Role in Case of Recession Risks
Goldman Sachs Group Inc. reports an increase in the likelihood of a U.S. recession within the next year, from 15% to 25%. Despite the increased risk, the group emphasizes several factors that should keep financial fears at bay, even following a substantial surge in unemployment. Concurrently, a decrease in interest rates by the U.S. Federal Reserve has proven historically promising for risk-on assets, such as cryptocurrencies, breaching the appeal of conventional savings and encouraging investors to seek out higher yields in alternative assets like Bitcoin.
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