If you’re following the markets, you’ll know the Federal Reserve is poised to cut interest rates next week to stimulate a lagging economy. While most crypto traders are jumping for joy at the thought of fresh liquidity entering the system, not everybody’s happy. The upcoming rate cut, according to some, could have a catastrophic effect on the global economy.
A Rate Cut Is ‘Bad Monetary Policy’
Economist, investor, and everybody’s favorite goldbug Peter Schiff did not mince his words, calling a rate cut a “huge mistake” in a post shared on X.
As crypto traders gear up for a potentially bullish period, Schiff warns of serious consequences that will gravely impact the economy.
His commentary is blunt. He points to recent price moves in gold and silver as clear evidence that the rate cut is being telegraphed by the markets. Schiff wrote:
“Silver just traded above $42. Gold is poised to break to a new record high. I think the precious metals are getting ready to melt up. This is an unmistakable market signal that the Fed’s upcoming rate cut is a huge mistake.”
He argues that the decision will set off a string of cuts and a return to aggressive quantitative easing, potentially with “definitive yield curve control.” Schiff claims the U.S. dollar could lose its reserve currency status as confidence in the Fed’s judgment wavers.
Peter Schiff has long pushed the view that overly easy policy will stoke inflation and put the dollar at risk. He believes that today’s environment represents the Fed’s most damaging error yet.
“Ever since Alan Greenspan rescued the stock market after the 1987 crash, the Fed has made a series of increasingly bad monetary policy mistakes.”
Why Crypto Traders Are Jubilant About a Rate Cut
Risk-on asset traders welcome rate cuts with open arms. Lower interest rates flood markets with cheap capital and loosen financial conditions, which typically results in higher prices for volatile assets like crypto.
Bitcoin, Ethereum, and altcoins tend to rally as liquidity improves, triggering a wave of buying and bullish sentiment. The CME’s FedWatch tool shows market participants almost unanimously expect a cut (93.4%), with bets on both Bitcoin and altcoins accelerating into the meeting.
Lower rates mean money can move out of safe havens and into riskier bets, which is another reason Schiff is opposed to the cut. In plain language: Traders want easy money.
Recent cycles show crypto runs higher whenever the Fed loosens policy, and traders are already calling for a new bull market as expectations for rate cuts hit fever pitch.
Supporting a Weaker Labor Market
While Schiff sounds the alarm, many respected analysts, including teams at Goldman Sachs, BlackRock, and a 107-economist Reuters survey, see the rate cut as a necessary step to support the weakening labor market and prevent recession.
Goldman’s chief economist expects a series of small cuts, noting softer employment data and muted inflation as justification for easing. Others warn that cutting rates too fast could actually push inflation higher or weaken the dollar, backing some of Schiff’s concerns.
Jefferies strategist David Zervos suggested the Fed might need a deep 75 basis point cut, though he also cautioned that easy money could ultimately hurt by driving up prices and weakening currency fundamentals.
The upcoming Fed rate cut is a flashpoint. Schiff says it risks disaster, spiraling cuts, runaway inflation, and a weaker dollar.
Crypto traders, though, are celebrating the prospect of more easy money and the next phase in the bull run. The broader economist community remains split, weighing soft employment against inflation risk.
Whether the Fed is making a “huge mistake” or a well-timed rescue, the next move will have a lasting impact in both traditional and crypto markets
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