Regulation

US Fed Calls Emergency Meeting As Japan Markets Collapse

Published

2 months ago

August 5, 2024

In an unprecedented move, the U.S. Federal Reserve (Fed) has reportedly called for an emergency meeting today. This meeting aims to reassess interest rates as global markets experience severe downturns. Moreover, analysts expect a Fed rate cut by 50 basis points (bps) after the meeting.

US Fed Emergency Meeting Amid Global Market Crash

The Japanese yen (JPY) has plummeted by 13%, while the Korean and Taiwanese markets are down nearly 10%. Furthermore, Bitcoin price has seen a drastic 18% decline over the past five days. Meanwhile, the S&P futures have dropped by 4%. According to reports, the U.S. Fed has called for an emergency meeting amid market uncertainty.

The situation has triggered significant concerns, with the Federal Reserve expected to drop interest rates by 0.5% following the emergency meeting. According to CNBC host Ran Neuner, this is a critical moment: “This is the moment we have been waiting for.” He added, “The FED will need to react really fast to avoid a meltdown that could make 2008 look like a joke. It’s an election year. I’m expecting emergency action.”

The catalyst for this financial turmoil appears to be the reversal of the Japanese cash and carry trade, which has led to widespread panic across the global markets. The September rate cut probability has now increased to 100%, reflecting the urgency of the situation.

Market analysts suggest that an interest rate cut could provide some relief. Historically, Fed rate cuts have been used as a tool to stabilize markets, notably during the 2007-2008 financial crisis. “Interest rate cuts saved the housing market in 2007,” noted one analyst.

The Federal Reserve’s quick response is crucial to preventing further economic instability. The emergency meeting underscores the gravity of the current market conditions and the need for immediate action. However, Bitcoin critic and renowned economist Peter Schiff expects a recession in case the U.S. Fed cuts interest rates.

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

Impact On Bitcoin & Crypto As Recession Risk Soars

Goldman Sachs Group Inc. has raised the probability of a U.S. recession in the next year to 25% from 15%, according to a report by its economists led by Jan Hatzius. Despite the heightened risk, the report emphasizes that there are several reasons not to fear an economic slump even after a notable increase in unemployment.

The report, released to clients on Sunday, underscores that the overall economy continues to look “fine.” The economists pointed out that there are no major financial imbalances and the U.S. Fed has considerable room to cut interest rates if needed.

Goldman Sachs’ forecasts for Federal Reserve actions are more conservative compared to those of JPMorgan Chase & Co. and Citigroup. Hatzius’s team expects the central bank to reduce its benchmark interest rate by 25 basis points in September, November, and December.

“The premise of our forecast is that job growth will recover in August and the FOMC will judge 25bp cuts a sufficient response to any downside risks,” the Goldman Sachs economists stated. They also noted, “If we are wrong and the August employment report is as weak as the July report, then a 50bp cut would be likely in September.”

The impact of these economic forecasts and potential rate cuts extends to the crypto market, including BTC and other digital assets. Historically, interest rate cuts by the the U.S. have been bullish for risk-on assets, including cryptocurrencies. Lower interest rates reduce the attractiveness of traditional savings, leading investors to seek higher returns in alternative assets like Bitcoin.

Moreover, Bitcoin is often seen as a hedge against inflation and economic instability. If the Federal Reserve implements aggressive rate cuts, it could signal concerns about economic health, potentially driving more investors toward BTC as a store of value. However, market observers remain cautious owing to warnings from Schiff and other experts.

Also Read: Bitcoin ETFs To See 30% Gap Down From Jan Levels On Monday, Says Peter Schiff