With global financial markets taking a sharp downturn over the past two trading sessions, attention has turned to the U.S. Federal Reserve.
The Fed held rates steady at 5.25% to 5.5% at last week's meeting, and most industry observers have been predicting a 50 basis-point cut at September's meeting. However, a worse-than-expected U.S. jobs report coupled with various macroeconomic factors in recent days has led some to call for an emergency rate cut.
U.S. indices were down about 2.4% at publication time, while bitcoin, the largest cryptocurrency by market cap, was down more than 8%. The decline in the cryptocurrency market cap over the past 24 hours is the largest daily downturn since January 2022.
Jeremey Siegel on Monday called on the Fed to make an emergency 75 basis-point cut in the federal funds rate and another 75 bps cut in September. The professor emeritus of finance at the University of Pennsylvania's Wharton School of Business and Wisdom Tree chief economist told CNBC that the fed funds rate right now should be between 3.5% and 4%.
“If they are going to be as slow on the way down as they were on the way up, which, by the way, was the first policy error in 50 years, then we're not in for a good time with this economy,” Siegel said.
The deVere Group's Nigel Green called for a 25-basis point cut right now to avoid a recession. In a note, he said the Fed “needs to take action now…or there could be legitimate and far-reaching risks of a hard landing.”
Bitwise CIO Matt Hougan sees a more measured approach and said an emergency cut is unlikely.
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“Powell is pretty measured, and the timing around the election makes an emergency anything seem unlikely,” Hougan told The Block. “But we'll probably see 50bps in September and 100bps+ by year-end. We're entering a new cycle of global liquidity, same as the last cycle.”
Hougan also recalled March 12, 2020, the date of the COVID-inspired market crash that saw the Dow fall 2,400 points while the price of bitcoin plummeted nearly 40%.
“But guess what, that turned out to be a historic buying opportunity. Bitcoin rallied more than 1,000% in the next year, as central banks did what they do and printed their way out of the crisis,” Hougan said, noting this looks more like an opportunity than cause to panic.
Last Friday, the 12 spot bitcoin exchange-traded funds logged outflows of $237.45 million, their biggest single-day of outflows since May 1 ($563.77 million).
The GMCI 30, which represents a selection of the top 30 cryptocurrencies, is down 9.6% to 102.98 over the past 24 hours. That's the index's lowest level since early February.
“The Fed stands ready to implement policy to achieve its dual mandate of price stability and full employment,” Brian Rudick, senior strategist at crypto market maker GSR, told The Block in an email. “As such, should it determine that current policy is restrictive and undertake an emergency inter-meeting rate cut, that would be a positive for risk assets, including Bitcoin and other cryptocurrencies. Not only would it demonstrate that the Fed's willingness to act, but also Bitcoin's price has shown a strong positive correlation with global liquidity since its inception.”