How the US Federal Reserve's Interest Rate Policy Changes Will Affect the Markets-banner-imageResearch

How the US Federal Reserve's Interest Rate Policy Changes Will Affect the Markets

One of the most important factors affecting the global economy is the interest rate policy of the US Federal Reserve (FED).

The FED interest rate represents the short-term interest rate set by the central bank and charged by banks to each other. The FED uses interest rates to stabilize the economy and rein in inflation.

The interest rates announced by the FED are set by the Federal Open Market Committee (FOMC). The FOMC is the FED's top decision-making body and meets several times a year. The Committee makes statements about the US economy and decides on interest rates accordingly. These announcements have a profound impact on the cryptocurrency market as well as the global economy.

While the FED's aim in raising interest rates is to slow down the economy, the main reason for lowering them is to target the growth and revitalization of the economy.

Interest rate policy in recent years

The US Federal Reserve took great responsibilities after the global financial crisis in 2008. The crisis had a major impact all over the world and caused a near collapse in the US economy.

The FED took action after the crisis and pursued expansionary monetary policies to stimulate the economy and control inflation. Among these policies, lowering interest rates played an important role in the recovery of the economy.

With the reductions it started at that time, the FED lowered interest rates to almost 0 until 2015.

Then, the FED, which started to increase interest rates again in 2015, constantly changed its decisions in order to keep the economy in balance until the outbreak of the Covid-19 pandemic, even if it did not make big moves.

The FED, which continuously printed money and kept interest rates at a low level during the Covid-19 pandemic, continued its interest rate hike adventure, which started in March 2022 as part of its policy to get rid of the pandemic effects and reduce inflation to 2%, for about 1.5 years.

The FED raised interest rates for a long time, reaching a range of 5.25%-5.5%, the highest level in the last 22 years.

While the FED has not decided to raise interest rates in the last 3 meetings, there is only one meeting left in 2023, which will take place on December 13th, and no change is expected for interest rates in this meeting.

However, the FED's prospects for future rate cuts and their impact on global markets have started to be highly anticipated.

Will the FED Raise Interest Rates in 2024?

In a statement made recently, FED officials signaled that they would move towards keeping interest rates stable for at least a while next year.

When we look at the expectations of global markets, we see a picture that the FED will no longer raise interest rates. Stating that it is determined to reduce inflation to 2% at every meeting, the FED is thought to have made such statements due to the decline in the Consumer Price Index (CPI) data, which reached 9.1% in June 2022, to 3.2%.

In general terms, we see a data falling to 3.2% from an inflation environment exceeding 9%. It is estimated that the high interest rate stance has been successful and that the FED will reach its target if nothing goes wrong.

Therefore, in line with global market expectations and expert comments, it is assumed that the FED will not raise interest rates next year and will even cut them as of March 2024.

What might happen if the FED cuts interest rates in 2024?

Market expectations are that the FED will not make any changes at the meeting to be held on January 31st of 2024 and will take action to lower interest rates again from March. There are even expectations that interest rates will fall to 3.25% by the end of 2024, depending on the course of inflation.

Previously, in such cases, there was a revival in the global economy and a rise in risk assets such as cryptocurrencies. In 2019, with the start of interest rate cuts, gold and Bitcoin started to rise. With the interest rate decision now completely bottoming out, two assets that we can take as an example had officially experienced a rally.

A similar situation took place in the US stock markets; Nasdaq, S&P500 and Dow Jones. The indices, which started to rise with the FED's interest rate cuts, experienced huge rises until the end of the cuts and interest rate hikes again.

Assuming that the FED's interest rates have now reached their peak, there is likely to be a global easing and an increase in risk assets.