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Fed’s Dovish Stance Could Turbocharge Crypto Markets in Q4

Fed Chair Jerome Powell’s comments on Tuesday have rekindled some confidence in crypto markets, as the likelihood of rate cuts increases.

In a speech about the central bank’s balance sheet, Powell openly acknowledged the rising “downside risks to unemployment” in a dovish signal that the central bank is preparing to ease monetary policy.

“Rising downside risks to employment have shifted our assessment of the balance of risks,” he said before adding, “We judged it appropriate to take another step toward a more neutral policy stance at our September meeting.”

“There is no risk-free path for policy as we navigate the tension between our employment and inflation goals.”

End of QT Is Good For BTC

Powell indicated the Fed may approach the point of stopping balance sheet runoff in the coming months, suggesting the quantitative tightening phase is nearing its end, clearing the path for more rate cuts.

The target rate probability for a 0.25% cut at the Fed’s Oct. 29 meeting is currently 95.7%, according to the CME futures markets. However, the probability of a similar cut in December has risen to 94.8% suggesting that rates are likely to be cut by 0.5% by the end of the year.

“While there was little doubt the FOMC was angled to cut rates at its next meeting, today’s remarks were strong confirmation of that expectation,” said JPMorgan’s Chief Economist Michael Feroli.

“We have a completely dovish Fed, with 125 bps of rate cuts already priced in, poised to end QT,” 说过 Bitcoin entrepreneur Joe Consorti before adding:

“BTC has been effectively rangebound since May. You know what happens next. Don’t overthink it.”

In a separate post, he said that now that quantitative tightening is ending and the Fed’s policy rates are coming down to sub-3%, “BTC now has the tailwinds of easing at its back.”

QT is when a central bank reduces the size of its balance sheet by allowing bonds and securities it owns to mature without replacing them. It is the opposite of Quantitative Easing (QE), where the Fed buys securities to inject money and liquidity into the economy.

No Market Reaction Yet

Crypto markets are still jittery and reeling from the industry’s largest liquidation event over the weekend, so the reaction was muted.

Total capitalization fell below $4 trillion as Bitcoin dumped below $110,500 again on Tuesday in a typical pattern of Asia pumping and America dumping. It had recovered to trade at $112,500 during the Wednesday morning Asian session.

Ether prices lost the psychological $4,000 level yesterday, but had recovered to $4,120 at the time of writing. The altcoins were mostly still bleeding despite a minor recovery for some.

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