(Kitco News) – This week started with Bitcoin (BTC) bears taking another shot at breaking King Crypto below support at $65,000 as interest rates are a focus for investors – with growing concerns that there could be no rate cuts in 2024.
While the CME FedWatch tool shows that investors currently give a 64% chance of a rate cut in September, Sunday saw Minneapolis Federal Reserve President Neel Kashkari say it’s a “reasonable prediction” that the central bank will cut interest rates once this year but will wait until December to do so.
“We need to see more evidence to convince us that inflation is well on our way back down to 2%,” Kashkari said in an interview with CBS' ‘Face the Nation’ program. The comments come after the Fed held the benchmark rate in the 5.25%-5.50% range last week, marking nearly a year the rate has been fixed at that level.
"We're in a very good position right now to take our time, get more inflation data, get more data on the economy, on the labor market, before we have to make any decisions," Kashkari said. "We're in a strong position, but if you just said there's going to be one cut, which is what the median indicated, that would likely be toward the end of the year."
While the median forecast from all 19 FOMC members was for a single interest rate cut this year, investors are less confident in the committee's projections after the expected rate cuts in 2024 declined from 6 at the start of the year to one currently.
Chief among the reasons why there could be no interest rate cut is the fact that the year-over-year change in the personal consumption expenditures price index, the Fed’s preferred inflation measure, registered at 2.7% in April, well above the Fed’s 2% target.
The U.S. housing market is one sector that has been especially hard-hit by higher interest rates. While some have pointed to the barrier to entry that high interest rates and borrowing costs pose to people trying to buy a home, Kasharki said bringing inflation down to the Fed’s target is the best thing the central bank can do for the housing market.
"If we simply cut interest rates to try to support home ownership right now, that would probably push up the price of houses, and it actually wouldn't lead to any better affordability," he said. “The best thing we can do is do our job - get inflation back down to our target - and then, hopefully, the supply side of the economy can step in to build the homes that Americans need.”
Cryptos, risk assets in general, and even precious metals have also struggled in the wake of last week's FOMC announcement as investors have sought the safety of U.S. Treasuries and the dollar.
“Bitcoin's decline has accelerated, dropping over 6% following the Fed's hawkish stance,” said analysts at Secure Digital Markets. “Altcoins are underperforming Bitcoin, while in traditional finance, small-cap stocks are lagging behind the SPX this year. This trend indicates a ‘flight to quality,’ where investors shift capital from riskier investments to safer assets during market uncertainty to minimize losses and preserve capital.”
“Stock futures showed little movement on Monday morning as traders began a holiday-shortened week,” they added. “Investors will be closely monitoring if the rally can continue amid emerging market uncertainties. Markets will be closed on Wednesday for the Juneteenth holiday.”
According to Charlie Morris, lead analyst at ByteTree, on-chain data suggests that the weakness for Bitcoin will persist for at least a few more months as “the dollar transactional value has turned down.”
“I don’t know how long this will last, but it appears to be a decisive change,” Morris wrote. “It suggests that we should not be surprised to see a break lower.”
“All the promises of halving that would send Bitcoin to the moon have been empty,” he added. “Despite strong inflows into the ETFs this year, the price keeps hitting resistance above $70,000. Today, the price is back below the 30-day moving average, and the trend has dropped to a 2/5. Yet, it is still in a longer-term uptrend.”
“My thesis remains unchanged that Bitcoin breaks higher in October, after a summer break,” Morris said. “This happened in both 2016 and 2020. It took a six-month break post-halving before the network settled down from the pre-halving hype.”
At the time of writing, Bitcoin trades at $65,315, a decrease of 1.88% on the 24-hour chart.
BTC/USD Chart by TradingView
