With weak labor market data and the limited impact of tariffs, the probability of a Fed rate cut in September has risen to 93%.
Goldman Sachs, Citi, Wells Fargo, and UBS anticipate that interest rate cuts will occur in the coming period, boosting market optimism with their 100 basis point cut estimates.
Crypto analysts are optimistic, believing that interest rate cuts could increase demand for digital assets and drive up prices.
Investor expectations for a rate cut are rising in response to rising inflation and concerns about a weakening labor force following the market's tariff turmoil. According to CME's FedWatch tool, markets are pricing in a 93% probability of a Fed rate cut in September. The previous estimate was 41%.
This shift, driven by weak labor market data and the impact of tariffs falling below expectations, has also fueled optimism in crypto markets. Crypto analysts predict that interest rate cuts will attract capital to digital assets, increasing demand and potentially driving up prices.
Forecasts from four investment banks support this optimism. Goldman Sachs recently updated its rate cut forecast, announcing that it expects three 25 basis point cuts this year.
The rate cuts are expected to occur in September, October, and December. Goldman also revised its forecast for 2026, anticipating two additional cuts, with the final interest rate falling between 3% and 3.25%.
Goldman analysts commented, “We previously anticipated that the peak impact of tariffs on monthly inflation and the recent large increases in some household inflation expectations would make early rate cuts difficult. Early data suggests the impact of tariffs is somewhat smaller than we anticipated.”
In line with Goldman, other institutions such as Citigroup, Wells Fargo, and UBS also expect rate cuts this year. UBS forecasts a 100 basis point cut.
Optimistic Outlook for the Fourth Quarter
Low interest rates generally encourage investment in riskier assets like cryptocurrencies by reducing borrowing costs.
Historically, such monetary policy changes have driven capital flows into digital assets, leading to price increases. Similarly, the failure of the anticipated interest rate cuts in July has contributed to the downward trend in Bitcoin and other crypto assets, highlighting this correlation.
On the other hand, current sentiment suggests that crypto analysts remain optimistic about the market's future.
“As I mentioned before, I have a very optimistic outlook for the fourth quarter. Key factors include potential Fed rate cuts, the economy remaining strong, and regulatory clarity,” said analyst Ted Pillows.
Presto Research analysts, on the other hand, draw parallels to the central bank's abrupt interest rate cuts in late 2024. This change caused Bitcoin's price to double by the end of the year.
"Last August's growth fears pushed the Fed to implement a 'compensatory rate cut' from September to December, and the price of Bitcoin doubled during this period," Presto Research analysts Peter Chung and Min Jung wrote in a market report published yesterday.
Historical trends may also support bulls. According to Coinglass data, while August returns were mixed, Bitcoin typically finished September and October higher in previous easing cycles.