Will the Fed Cut Rates in May? Falling Inflation Meets Rising Market Tensions
U.S. inflation has cooled for the first time in a while, offering the Fed a reason to reconsider its hawkish stance and possibly cut interest rates as early as May. Markets, particularly crypto, are hoping for a pivot.
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March inflation in the U.S. has slowed down, marking the first noticeable deceleration in price growth since 2021. This could prompt the Federal Reserve to consider a rate cut as early as May.
For the markets, this could become a turning point. Easing monetary policy typically boosts risk appetite, from stocks to cryptocurrencies.
However, despite the decline in the U.S. Consumer Price Index (CPI), other concerning signals continue to build up:
- Instability in the debt market
- Escalating trade disputes
- Ongoing macroeconomic turbulence
Optimism around inflation is only part of the complex picture.
Following the release of the report, the crypto market saw a slight recovery. Bitcoin held steady above $80,000, but no strong momentum followed.
Meanwhile, traditional markets are taking a more cautious approach. Investors are awaiting actions from the Federal Reserve and closely monitoring the bond market.
With 10-year bond yields surging, concerns rise as higher yields signal declining trust in government debt.
Furthermore, this shift could signal structural issues in the economy, even with the decline in CPI.
Read more: US Inflation and Bitcoin Price: Is There a Connection?
Risks for the Market Amid New Trade Tariffs
The U.S. announced a 90-day pause on tariffs, but trade tensions continue to escalate. New tariffs from both the U.S. and China are adding pressure on global markets, undermining the effects of easing policies.
Amid this instability, capital could begin flowing into digital assets. The crypto market might receive a boost, especially if the Fed decides to cut rates. However, high volatility and external risks make it difficult to be confident in sustained growth.
While inflation is slowing down, which is a positive development, it doesn't change the overall outlook. The economy remains vulnerable, and a rate cut won't address all of its issues.
This opens a window of opportunity for crypto, but the view might be clouded.
You might also like: Beyond the Tariffs: The U.S.–China Trade War’s Ripple Effect on Crypto
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