A large interest rate cut by the United States Federal Reserve would be better for risk assets and the crypto markets and not bearish as some believe, says the chief of a crypto hedge fund.
Asymmetric founder and CEO Joe McCann told Cointelegraph it was a “coin flip” on a 25 or 50 basis point interest rate cut as the US central bank is poised to cut rates from their current 24-year high of 5.5% on Wednesday, Sept. 18, for the first time since March 2020.
McCann said when an outcome is priced at a 70% chance in the Fed futures markets, it historically has a 100% success rate.
The CME Fed Watch tool currently has a 65% chance of a larger 50 basis point cut, compared to 35% odds on a 25 basis point rate cut.
He added recent media coverage and statements from former Fed governors have influenced market expectations toward a 50 basis point cut.
Probability of Sept. 18 rate cut size. Source: CME Fed Watch tool
However, McCann said a lower 25 basis point cut could be bad for crypto markets.
“I think if the Fed cuts 25 basis points, the equities markets will take a serious hit. Crypto will likely fall along with that. And the reason is, you’ve got stocks at all-time highs assuming a 50 basis point cut.”
But if the Fed cuts 50 basis points it would likely be positive for risk assets like crypto, he added.
Saad Ahmed, head of Asia Pacific at crypto exchange Gemini, told Cointelegraph that the markets may have already priced in the rate cut, but it could influence a breakout.
“I think a lot of these things are probably built into the price already because people are anticipating it. However, sometimes it’s good to have a catalyst for the price to break out of a range.”
If there is a larger 50 bps cut, “Ultimately, you know, risk-on is back on the table,” he added.
McCann disputed the widely held notion that a 50 bps cut would be bearish, noting that the last few times the Fed cut rates were emergencies, like during the 2008 financial crisis, the mid-1990s dot-com bubble, and the 1987 Black Monday crash.
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However, the current “booming” economy is different and more stable now, with 3% GDP growth, McCann said.
Additionally, the rationale for a larger cut includes stimulating growth into 2025, reducing net interest payments for the US Treasury — enabling people to sell homes, refinance mortgages and protect against potential bad data points before the presidential election.
On Sept. 17, the macroeconomics blog The Kobeissi Letter wrote, “The market has never been so uncertain about a Fed interest rate decision in at least 15 years.”
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Additional reporting by Andrew Fenton.
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