Regulation

Is A Fed Rate Cut Ahead? Experts Warn It May Escalate Market Bloodbath

Published

5 months ago

August 5, 2024

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Speculations around Federal Reserve’s potential rate cuts have intensified amid global economic turmoil. Prominent financial figures warn that such a move could lead to severe repercussions, potentially causing further crypto market crash. Today, the U.S. Fed has reportedly arranged an emergency meeting to decide on rate cuts.

Expert Warnings Against US Fed Rate Cut

Scott Melker, also known as The Wolf Of All Streets, highlighted the potential downside of a Fed pivot. He stated, “The Fed pivot you’re all excited about is often bearish, especially when it’s a reaction to things breaking.” This suggests that Fed rate cuts, typically seen as a measure to stimulate the economy, might worsen the crypto crash.

In a detailed analysis shared earlier, Melker explained that the common belief that a Fed pivot is beneficial for markets is “patently false.” He pointed out that historically, “after the Fed pivot to rate cuts, the market almost always crashes/corrects.”

Furthermore, Melker’s analysis indicates that rate cuts often precede significant market dips. This could spell trouble for cryptocurrencies already facing intense downward pressure. Today, over $1.1 billion liquidations have been initiated in the crypto market.

Moreover, nearly $1 billion liquidations are attributed to longs. This could have accelerated the latest downturn owing to fear, uncertainty, and doubt (FUD). Recently, Goldman Sachs also raised the probability of a U.S. recession in the next year from 15% to 25%. Bitcoin critic Peter Schiff also weighed in on the situation.

He predicted that the Federal Reserve might cut rates mid-meeting to stabilize collapsing stock and labor markets. However, Schiff warned that such measures would fail to revive the economy or employment but could exacerbate inflation. Moreover, the economist hinted at a recession if a Fed rate cut is announced anytime soon.

Additionally, Peter Kinsella of UBP says an emergency Fed rate cut from the Fed is “unlikely.” He expects it would “send panic signals to the market,” according to a Bloomberg interview. Kinsella suggests that if the U.S. Federal Reserve just signals a September rate cut then that should tackle the immediate problem of the market downturn.

Gold Price Movement

In another statement, Schiff highlighted a significant downturn in gold price. The asset noted a drop of over $80 amid the market uncertainty today. Hence, Schiff emphasized that this decline is a “bearish signal” for the markets, which saw dramatic losses.

The Dow Jones Industrial Average fell over 3% and the Nasdaq index plummeted more than 6% to new morning lows. According to Schiff, the drop in gold price movements suggests that market participants do not anticipate the Federal Reserve intervening with an ’emergency rate cut.’

Also Read: Breaking: US Fed Calls Emergency Meeting As Japan Markets Collapse

U.S. Fed Emergency Meeting

The crypto market has already shown signs of distress. Over the past five days, Bitcoin price has plunged by 22%. The S&P futures have dropped by 4%, reflecting broader market instability. In response to these developments, the U.S. Federal Reserve has called for an emergency meeting, heightening expectations of a potential rate cut.

The Japanese yen (JPY) has also seen significant depreciation, falling by 13%. Whilst, the Taiwanese and Korean markets are down nearly 10%. These declines in international markets add to the global financial uncertainty. This further complicating the Fed rate cut decision-making process. Analysts expect a 50 bps cut after today’s emergency meeting.

Given these conditions, a Fed rate cut could lead to further volatility in the crypto market. However, CNBC host Ran Neuner offered a differing opinion, describing this moment as critical. He noted, “This is the moment we have been waiting for.” In addition, he emphasized the urgency for the Fed to act swiftly to prevent a financial meltdown that could surpass the 2008 crisis.

Meanwhile, the VIX Index, often referred to as Wall Street’s “fear gauge,” has surged above 50 for the first time since April 2020. This significant rise reflects heightened market volatility and investor anxiety. Moreover, it is echoing levels seen during the onset of the Covid-19 pandemic.

Also Read: Crypto Crash: Liquidations Cross $1 Billion As Japan’s Nikkei Drops 13%