Strategists at UBS investment bank expect a significant interest rate cut by the US central bank, which is seen as bullish for Bitcoin. UBS said falling inflation could prompt the U.S. central bank (Federal Reserve) to start cutting interest rates as early as March. This development is perceived as very positive for Bitcoin, especially considering recent economic indicators.
US inflation slows significantly, eliminating bets on further Fed rate hikes
Recent data reveals slowing U.S. inflation, extinguishing hopes for further rate hikes from the Federal Reserve. The consumer price index stalled in October, with the core index rising 0.2%. Those numbers have led traders to push back when they expect the U.S. Federal Reserve to make its first move to cut interest rates.
This change in expectations is consistent with UBS’s prediction of a significant interest rate cut, creating a supportive backdrop for Bitcoin in the following ways:
Reduced opportunity cost: As traditional interest rates decline and expectations of further rate hikes fade, the opportunity cost of holding Bitcoin also decreases. This could make Bitcoin more attractive to investors looking for alternative assets.
Inflation hedge: As inflation slows, investors could turn to assets like Bitcoin, which some see as a hedge against inflation. The scarcity and decentralized nature of cryptocurrencies could make them an attractive store of value in an environment of reduced inflationary pressures.
Market speculation: Revisions to the Fed’s rate hike outlook could spark speculative activity in financial markets. Bitcoin’s higher return potential and its characteristic volatility may attract traders looking for opportunities in a changing interest rate landscape.
Macroeconomic uncertainty: Recent economic data, coupled with revised Fed rate hike expectations, may signal broader economic uncertainty. In times like these, Bitcoin’s role as a decentralized and non-traditional asset is likely to become more prominent as investors seek to escape market volatility.
This combination of factors, with the potential for increased demand and favorable market sentiment, is reinforcing Bitcoin’s positive outlook.