Three Democratic senators, led by Elizabeth Warren, have called on interest rate cuts from the Federal Reserve at its upcoming meeting this week.
Senators Jacky Rosen and John Hickenlooper joined Warren in signing a letter addressed to Fed Chair Jerome Powell, urging a policy shift to ease economic pressures on American households.
The senators argue that high interest rates aren't taming inflation. Instead, they're raising essential housing and auto insurance costs, and edging the economy toward a recession.
"High interest rates are not effectively reducing inflation but instead driving up costs for essential expenses," the letter states.
Since March 2022, the Fed has jacked up interest rates eleven times, hitting a 20-year peak of 5.5%. This aggressive move has economists and lawmakers sweating bullets over potential job losses, economic strain and the wreckage of risk-on assets like crypto.
Implications for Cryptocurrencies After Interest Rate Cuts
Senators are eyeing the actions of other central banks, pointing out that the European Central Bank and Bank of Canada have recently slashed rates. This move has widened the rate gap with the U.S., risking a stronger dollar and tighter financial conditions
"The Fed's decision to keep interest rates high continues to widen the rate gap between Europe and the U.S.," they caution.
Cutting interest rates could change the game for crypto. As U.S. Treasury yields fall, riskier bets like cryptocurrencies become more tempting. Bitcoin and other major cryptos are currently in a slump, way down from their record highs.
What to Expect From the Fed's June Meeting
Despite the noise from crypto traders for rate cuts, the Fed will likely hold firm at 5.25%-5.50%. Friday's solid job numbers (that has many holes) backed up the consensus, with Wells Fargo calling it a 'wait and see' game."
"The economy is holding up, services, inflation is still high, and they won't be ready to start cutting interest rates until they believe inflation is moving back to the 2% target," says Anthony Saglimbene, chief market strategist at Ameriprise Financial.
The Bottom Line: When Will the Fed Cut Rates?
The rate outlook has flipped since January—investors now expect one cut, if any.
Morningstar's Preston Caldwell is one of the few predicting two cuts starting in September.
Even if the Fed does not cut rates this year, there is still optimism for crypto investors.
Thanks to the approval of Ethereum ETFs and large inflows into BTC funds, crypto can survive high interest rates for a few more months.
