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Projected US Interest Rates in Five Years: Will Fed Cut Rates In 2024?

Last Updated 31 seconds ago
Giuseppe Ciccomascolo
Last Updated 31 seconds ago
Key Takeaways
  • The Federal Reserve has kept record-high rates unchanged.
  • Other main central banks have started to cut rates.
  • White House candidate Donald Trump warned Jerome Powell not to cut rates before the US elections.
  • The Next Federal Open Market Committee meeting will be on July 30 and 31.
  • How do interest rates influence cryptocurrencies?

On Wednesday, June 12, 2024, the US Federal Reserve decided  to keep interest rates unchanged and indicated that only one rate cut is likely before the end of the year.

The federal funds rate remains within the range of 5.25% to 5.50%. The traders looked at the dot plot to determine if and when a cut would occur. However, the FOMC has several different views on this front.

Despite the slowing path of inflation, Fed Chair Jerome Powell expressed  some doubts over the possibility of cutting rates in 2024. He admitted the US is making “modest” progress on inflation.

While the US still anticipates a rate cut, former President and leading Republican candidate Donald Trump has warned Powell not to cut interest rates before the November election.

Trump Warns Powell On Rate Cut Before US Elections

On Tuesday, July 16, in an interview with Bloomberg, Republican candidate for the US presidency, Donald Trump, said that if he wins, he will allow Jerome Powell to complete his term as Fed Chairman until May 2026. Trump appointed Powell as Federal Reserve Chair, but their relationship quickly deteriorated due to divergent views on Fed policy

The former President also suggested that the Fed should avoid cutting interest rates before the November election.

“Right now, you have to keep rates where they are until you bring the economy and it could drop. Inflation is a Country buster. It’s interesting. You study inflation more than I do but I’ve studied inflation plenty. And you look back to old Germany, you look back to so many countries, it eventually breaks a country,” Trump told Bloomberg.

“They [Fed’s members] have a dream that they want to lower interest rates but they are very tough right now. Now, I would have a plan to lower costs. It doesn’t have to be interest rates. Costs. Because if you could lower costs, you could then lower interest rates,” he added.

“But interest rates are very high now and it’s hard for them. I know they want to try and do it. Maybe they will do it prior to the election, prior to November 5, even though it’s something that they know they shouldn’t be doing.”

While Trump sees Jamie Dimon, CEO of JPMorgan Chase, as a possible Treasury Secretary if he wins the US elections, he is adamant about keeping Powell as Fed chief. Nevertheless, despite Trump’s warning, recent indicators suggest no rate cuts any time soon.

No Cuts Expected Soon

“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the committee’s 2% inflation objective,” the Fed stated .

“The committee aims to achieve maximum employment and maintain inflation at a 2% rate over the long term. Over the past year, the risks to achieving these employment and inflation goals have become more balanced. The economic outlook is uncertain, and the committee remains highly attentive to inflation risks.”

Attention was drawn to the Fed’s latest economic projections, including the dot-plot chart of median interest rate expectations. This chart now suggests only one rate cut before the end of 2024, down from the previous projection of three cuts.

The Fed further noted, “The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

New Outlook On Monetary Policy

The Fed’s latest economic projections, including the dot-plot  of median interest rate expectations, suggest only one rate cut is likely before the end of 2024, down from three projected in March.

Four members of the Federal Open Market Committee (FOMC) anticipate no cuts, seven foresee one quarter-point cut, and eight support two cuts. The median projection for the benchmark federal funds rate is 5.1% by the end of 2024, implying just over one quarter-point cut. Through 2025, the FOMC now expects five total cuts, down from six in March, which would leave the federal funds rate at 4.1% by the end of next year.

The Fed emphasized, “The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

“Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the committee’s 2% inflation objective,” the Fed added.

“We welcome today’s reading and hope for more like that,” Fed Chair Jerome Powell told  reporters. However, Powell cautioned that this is just one reading and shouldn’t overly influence policy decisions. He described the inflation forecasts as “conservative,” assuming “good but not great” numbers ahead. The FOMC is considering a range of policy outcomes based on data.

Powell acknowledged the risk of cutting rates too late but assured that the Fed isn’t waiting for significant economic weakening before taking action. “We’re watching very carefully. We’re looking at the balance of risks,” he said.

Analysts Reactions

Ian Shepherdson at Pantheon Macroeconomics  commented on the market reaction to the dot plot, noting that investors remain “unconvinced by the unexpected hawkishness of the new dots.”

He predicts the aggressive dot-plot will be short-lived, expecting the Fed to backtrack as the labor market softens and core PCE performs better than anticipated. Shepherdson forecasts the first rate easing in September, followed by 50bp cuts in November and December.

Antonio Ernesto Di Giacomo, market analyst at xs.com , told CCN: “The Federal Reserve raised its neutral rate estimate, now at 2.8%. The neutral rate is the level of interest rates considered neither expansionary nor restrictive for the economy, and its upward adjustment suggests that the Fed perceives an economy that requires higher equilibrium rates to prevent overheating. This adjustment reflects the Fed’s view that the economy may need a more prolonged and persistent adjustment in interest rates to maintain long-term price stability.

“Despite the upward revision of inflation expectations, the Fed’s economic growth projections remain unchanged. The Gross Domestic Product (GDP) is expected to grow by 2.1% in 2024 and 2% in 2025. These projections indicate that the Fed believes the US economy can withstand higher interest rates without falling into a deep recession.

“The balance the Fed seeks between containing inflation and maintaining economic growth is delicate, and its ability to navigate these challenges will be crucial for economic stability in the coming years.”

Other Central Banks Started To Cut

While the market awaits for the US central bank – and the Bank of England as well – to start cutting rates, other banks in the World have already launched their cutting-cycles. On Thursday, June 6, 2024, the European Central Bank (ECB) cut interest rates for the first time since 2019, surpassing the US Federal Reserve and the Bank of England in this move.

The Frankfurt-based institution reduced rates by 25 basis points, a decision widely anticipated by the markets. Prior to this reduction, the ECB had raised rates by a total of 450 basis points, or 4.5 percentage points, since July 2022, marking its first interest rate hike in 11 years.

One day before, the Bank of Canada (BoC)  lowered its key interest rate to 4.75 percent, marking its first rate cut since March 2020.

Bank Governor Tiff Macklem stated in his opening remarks that the bank’s monetary policy no longer needs to be as restrictive. “We’ve come a long way in the fight against inflation, and our confidence that inflation will continue to move closer to the two percent target has increased over recent months,” Macklem said.

The first central bank that started to cut rates was the Swiss National Bank (SNB) , which, in March, announced a surprise reduction of its key interest rate to 1.5%, following a drop in Swiss inflation to 1.2% in February. The SNB lowered its headline interest rate by 0.25 percentage points to 1.5% on Thursday, making it the first central bank of a major Western industrialized country to cut rates in the current cycle.

Fed’s Policy Depends On Job Market

The US central bank’s decision to cut rates will also have to be compatible with the signals coming from the economy and the labor market, which is showing signs of weakening.

The growth of new jobs in the US private sector  in May slowed to 152,000 jobs, after 188,000 in the previous month. Analysts’ expectations  indicated an increase of 173,000 units. A figure that does not bode well for the official report from the Department of Labor which will be published this afternoon.

At this point, the spotlight is on the numbers of those employed in the non-agricultural sector (nonfarm payrolls), for which the consensus predicts an increase of 182,000 units compared to the 175,000 units recorded in April.

For the private sector alone, growth of 170,000 jobs is expected compared to 167,000 in the previous month.

FOMC Won’t Raise Rates

The chair of the US Federal Reserve, Jerome Powell, sought to allay concerns that the next interest rate adjustment would be upward, indicating that current policy should prove sufficiently restrictive to temper inflation, during a press conference  held after the FOMC statement.

However, he tempered expectations for an imminent rate cut, citing the prolonged duration required to gain confidence in the trajectory toward the central bank’s 2% target inflation rate.

“I consider it unlikely that the next policy rate adjustment will involve a hike,” remarked  Jerome Powell during a press conference.

Powell expressed his belief that current policy is “restrictive” and anticipates that, over time, it will become “adequately restrictive.” Nonetheless, he emphasized that this determination would rely on data.

“The data will need to provide compelling evidence that our policy stance isn’t effectively reining in inflation to 2%,” Powell explained. “Based on current observations, that scenario doesn’t seem apparent.”

Nevertheless, Powell cautioned that it’s probable “to require more time for us to gain confidence in our path towards achieving 2% inflation,” effectively quashing any lingering hopes for an imminent rate cut.

“I cannot specify the exact timeframe,” he added.

Powell maintained his expectation for inflation to recede, though he admitted his confidence in this outlook has diminished due to recent data trends.

Powell Sees “Modest” Progress On Inflation

The US Federal Reserve is making “modest” progress in its fight against inflation, the head of the central bank told  lawmakers on Tuesday, July 9, 2024 during the first of two days of congressional testimony.

In response to the post-pandemic price surge, the Fed raised interest rates to their highest level in two decades to cool the economy and bring inflation back to its long-term target of 2%.

While inflation has significantly eased since its peak in 2022, progress stalled in the first quarter of this year, effectively pausing the Fed’s efforts. However, data from the second quarter has been more encouraging, leading to cautious optimism among some policymakers.

Before the Senate Banking Committee, Fed Chair Jerome Powell said that the most recent readings “have shown some modest further progress” since the first quarter of the year. “More good data would strengthen our confidence that inflation is moving sustainably toward 2%,” he added, according to his prepared remarks .

Officials Won’t Wait Inflation To Reach 2%

Powell stated on Monday, July 15, 2024, that recent data boosts the central bank’s confidence that inflation is moving toward its 2% target, signaling potential interest rate cuts in the near future.

“We didn’t gain any additional confidence in the first quarter, but the three readings in the second quarter, including last week’s, do add somewhat to our confidence,” Powell said during an interview  with David Rubenstein at the Economic Club of Washington DC.

While the central bank has primarily focused on tackling the post-pandemic surge in inflation, Powell emphasized that they are also closely monitoring their mandate to promote maximum employment. “If we were to see an unexpected weakening in the labor market, that might also prompt a response from us,” he added.

“I have always believed there was a pathway to getting inflation back to our 2% goal sustainably without significant pain in the labor market, like high unemployment typical of tightening cycles,” Powell remarked, noting that the overheated labor market could cool without drastic consequences.

He downplayed the likelihood of a “hard landing” for the economy, characterized by a sharp downturn. The Fed’s next policy meeting is scheduled for the end of July, and analysts widely anticipate that interest rate cuts could begin as early as the September meeting this year.

Addressing concerns about rate adjustments during a presidential campaign period, Powell emphasized, “We don’t take political considerations into account. We don’t apply a political filter to our decisions.” He also underlined the fact that the “Fed’s official won’t wait for inflation to reach 2% before operating on interest rates.”

Consumer Prices Must Decrease

Federal Reserve officials require more confidence that inflation is moving towards the target before they consider lowering interest rates, as revealed in the minutes from the June Federal Open Market Committee (FOMC) meeting released  on Wednesday, July 3, 2024.

The minutes indicated that “several” officials noted that if inflation remains elevated or increases further, the target range for the federal funds rate might need to be raised.

Overall, the minutes showed that while officials believed progress was being made in controlling inflation, it was slower than anticipated at the start of the year.

The FOMC observed signs of progress, such as smaller monthly changes in the core PCE price index, a lower trimmed mean inflation rate for April, and additional evidence from the May CPI reading. Recent data also showed improvements in various price categories, including market-based services.

However, the minutes  highlighted that despite some easing, inflation remains elevated.

“Members agreed that they did not expect it would be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably toward 2%,” the statement said.

Some officials sought lower overall services price inflation, and others noted that shelter price inflation had been slow to decrease.

Nevertheless, participants suggested that several developments in the product and labor markets supported their judgment that price pressures were diminishing, according to the statement.

PCE Inflation Eases In May

US inflationary pressures cooled as anticipated, according  to the Federal Reserve’s preferred measure released on Friday, June 28, 2024.

The Bureau of Economic Analysis reported that the core personal consumption expenditures (PCE) index grew 2.6% year-over-year in May 2024, down from 2.8% in April and March 2024. This figure matched the consensus cited by FXStreet .

The core PCE index, which excludes food and energy, saw a monthly increase of 0.1% in May 2024, in line with forecasts and down from 0.3% in April 2024.

The headline PCE index, which includes food and energy, rose 2.6% year-over-year in May 2024, slightly easing from 2.7% in April 2024. On a monthly basis, the headline PCE index was flat in May, following a 0.3% increase in April, also as expected.

Consumer Price Inflation Slows In June

Consumer prices in the United States rose at a slower pace than anticipated in June, according  to data released on Thursday, July 11, 2024, by the Bureau of Labor Statistics. The annual inflation rate reached 3.0%, down from 3.3% in May. This drop outperformed market forecasts, which predicted a 3.1% increase for June.

Looking at monthly changes, consumer prices  actually dipped slightly by 0.1% in June. This follows a period of no change between May and April. Analysts were expecting a small increase of 0.1% for June.

Core inflation, which excludes volatile food and energy prices, also showed a decrease. The year-over-year core rate fell to 3.3% in June, compared to 3.4% in May. This decline surprised markets, who anticipated the core inflation rate to hold steady at 3.4%. However, core inflation did see a slight monthly increase of 0.1% in June, easing from a 0.2% rise in May.

Michael Brown, Senior Research Strategist at Pepperstone , said: “While one inflation report won’t make up policymakers’ minds on its own, the figures add to the body of evidence pointing towards a September rate cut, following last week’s softer-than-expected June jobs report, and coming after Chair Powell’s Congressional testimony earlier this week, in which Powell struck a more cautious tone, nothing how the economy is no longer ‘overheated’ and that the jobs market is ‘fully’ back in balance.”

Dot Plot Expectations

According to the FedWatch Tool  on the CME Group platform, as of Thursday, May 2, 2024, futures tied to the effective federal funds rate (EFFR) signal an 86% probability of the rate remaining within the range of 5.25% to 5.50% at the June meeting.

This implies a mere 14% likelihood of a 25 basis points reduction to the range of 5.00% to 5.25%.

Looking ahead, futures suggest a 30% chance of a 25 basis points cut at the July meeting, and a 44% probability for the same reduction in September.

These insights come after the Federal Reserve opted to maintain interest rates at their current levels during its meeting on Wednesday.

Interest Rates’ Impact on Financial Markets

Projections and decisions regarding interest rates  hold immense sway over the broader economy. They affect various financial markets, including equities, bonds, and commodities.

The Fed’s key tool in this regard is the Federal Funds Rate (FFR). This serves as the base interest rate that influences banks, bond markets, and the overall economy. The Fed makes these rate decisions during its Federal Open Market Committee (FOMC) meetings, held eight times a year. The rate adjustments in 2022 brought about several hikes, with more in store for 2023.

The increase in FFR, in turn, leads to a rise in the prime rate, the fundamental interest rate charged by banks to creditworthy customers. If the FFR goes up, so does the cost of loans and mortgages. This uptick in the cost of servicing loans translates to reduced discretionary income for consumers and businesses. This, in turn, can dampen overall demand and mitigate inflationary pressures.

Fed funds over the years
Federal Reserve’s fund rates decreased during weak economy periods

The implications for stocks are twofold: consumer-dependent sectors like retail and hospitality may face headwinds due to reduced consumer spending. Growth stocks that rely on capital and borrowing could also suffer, as investors shift their focus toward more stable, value-oriented investments in response to market volatility and potential downturns.

Pressure On Bonds

From a mechanical perspective, rising interest rates put downward pressure on bond values. As rates climb, the yield on bonds becomes less attractive compared to the prevailing base rate. This has led to a sell-off in bonds.

This effect is particularly pronounced in the case of long-term bonds, as the discrepancy between their yield and the base rate grows over time.

As a result, fixed-income securities also lose value as the opportunity cost of not owning interest-rate tracking assets increases. Thus, predicting interest rates over the next five years becomes a critical indicator for market trends.

Outlook Is Gloomier 

Outlooks on the US economy have become gloomier, with reports of rising uncertainty and concerns over risks, the Federal Reserve reported  on Wednesday, May 29, 2024.

The Federal Reserve’s Beige Book  survey of economic conditions revealed that discretionary spending has cooled and consumers have become more cost-sensitive in recent weeks, while job gains were mostly modest to negligible.

From early April to mid-May, economic activity remained positive across the US, though conditions varied across industries and regions. After aggressively raising interest rates in 2022, the Fed has maintained them at high levels in recent months to combat stubborn inflation by reducing demand.

However, at their most recent meeting in May, policymakers kept the benchmark lending rate unchanged due to a lack of further progress toward the 2% inflation target.

There is growing anticipation that the Fed might start cutting rates, and a cooling economy could fuel such optimism. Currently, tight credit standards and high interest rates are restraining lending growth and impacting housing sales.

With prices continuing to rise, consumers in most of the Fed’s 12 districts have “pushed back against additional price increases,” leading to smaller profit margins. The report noted that “price growth is expected to continue at a modest pace in the near term.”

Meanwhile, some districts have reported a reduction in hiring expectations due to weaker business demand.

“Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks,” the Fed’s report stated. These uncertainties include levels of consumer demand, the timing of Fed rate cuts, and the outcome of the US presidential election..

Pressure On Economic Activity

In the first quarter of 2024, the US economy experienced an annualized expansion of 1.6%. This marked a notable slowdown from the previous quarter’s robust growth of 3.4%. And fell below the anticipated 2.5%. This growth rate represents the lowest since the contractions observed in the first half of 2022, according to the advance estimate from the US Bureau of Economic Analysis .

Several factors contributed to this deceleration. Consumer spending, a significant driver of economic activity, moderated to 2.5% from 3.3%, primarily attributable to a decline in goods consumption of 0.4% compared to 3% in the prior month, while spending on services accelerated to 4% from 3.4%.

Non-residential investment also experienced a slowdown, with a growth rate of 2.9% compared to 3.7% in the previous quarter. A decline in structures drove this, although investment in equipment rebounded, and investment in intellectual property products accelerated.

Government spending rose at a much slower pace while exports experienced a significant slowdown, and imports surged. Additionally, private inventories subtracted 0.4 percentage points from growth, an improvement from the previous quarter’s impact (-0.47 percentage points).

However, residential investment saw a remarkable surge, growing at a double-digit pace of 14%, contrasting sharply with the 2.8% growth seen in the previous quarter.

Historical Perspective on Interest Rate Policy

The US has experienced periods of both high and low-interest rate volatility in its history. In the postwar era of the 1950s, the FFR remained below 2%, bolstered by postwar stimulus and income growth. Over the next two decades, the rate fluctuated between 3% and 10% during the 1960s and 1970s, soaring to a record high of 19.1% in 1980 amid rampant inflation.

As the US economy stabilized and inflation was brought under control, the FFR hovered around 5% throughout the 1990s. However, recessions in 2001 and 2008 forced rates down to historically low levels, where they remained until 2016.

The COVID-19 pandemic necessitated another significant rate cut, nearly to zero. In 2022, the Fed increased rates seven times, followed by three hikes in 2023. The central bank brought the rate to its current range between 5.25% and 5.50%, the highest level in 16 years.

Factors Influencing Future Interest Rates

The Fed now faces the challenge of navigating uncertain economic conditions, marked by rising prices and an economic slowdown compounded by supply chain disruptions. Inflation, as well as the potential for a recession, are top concerns.

High Inflation

Inflation has been a focal point for central bank action. In 2022 and 2023, inflation was driven by a mix of demand and supply factors, sometimes interconnected. The Fed’s more hawkish stance appeared to have contributed to a moderation in price increases.

The rhetoric shifted in July. Official data from the US Labor Department revealed that the inflation rate had reached 3.2% year-over-year. To drive this increase were costs in housing, car insurance, and food.

This marked an uptick from June, which had seen the lowest rate in over two years, at 3%. Analysts had anticipated this rise in the headline rate, considering the relatively weak price inflation observed in the previous July.

US inflation rates
US consumer prices inflation peaks and lows

U.S. Dollar Resilience

Despite economic turbulence, the US dollar has remained remarkably resilient. Its status as a safe-haven currency, coupled with increased investor appeal due to the Fed’s hawkish monetary policy, has bolstered its performance. However, as the Fed’s monetary tightening slows and potentially pauses, the strength of the US dollar appears to be waning.

Dollar movements
USD performance

US Economy Grew Less Than Expected

The US economy expanded at an annualized rate of 1.3% in the first quarter 2024. This was down from 1.6% in the initial estimate and 3.4% in last quarter of 2023. This was primarily due to a downward revision in consumer spending.

The second estimate, which aligned with market forecasts, indicates the slowest growth since the contractions in the first half of 2022. Consumer spending slowed more than initially anticipated, driven by reduced consumption of both goods and services. Additionally, private inventories had a larger negative impact on growth.

On a positive note, non-residential investment was revised upward, particularly in structures and intellectual property products. Investment in equipment rose less than initially estimated but residential investment increased. Government spending was slightly revised up and both exports and imports increased more than previously reported.

Corporate profits in the US fell by 1.7% QoQ to $2.754 trillion in the first quarter of 2024. This followed a 3.9% increase in the last quarter of 2023. But it missed forecasts of a 3.9% rise. Undistributed profits decreased by 8.6% from 9.5% in Q4. And net cash flow with inventory valuation adjustment dropped by 2.2% from 3.5%. However, net dividends rose by 1.7% in the first quarter after a 1.3% increase in the previous one.

Projected Interest Rates In The Next Five Years

Analysts primarily focus on near-term interest rate forecasts, but long-term projections extend over the next several years. These forecasts offer valuable insights into interest rate expectations.

ING’s interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%. 

The University of Michigan inflation expectations in the US for the five-year outlook were revised slightly higher to 3% in August 2023. This is higher than the preliminary estimate of 2.9%, matching July’s reading.

Rate Cuts On The Horizon?

Economic growth was seen in a range between 1.2% and 1.7% in 2024, and 1.5% and 2% in 2025. Core PCE inflation is expected to fall to between 2.4% to 2.7% in 2024 and 2% to 2.2% in 2025.

Meanwhile, experts surveyed by Trading Economics note a decline in US consumer inflation expectations for the coming year.

Expectations for year-ahead price growth have shifted, with gas decreasing by 0.2% to 4.5%, and food by 0.1% to 5.2%, the lowest since September 2020. Medical care will decrease by 0.9% to 8.4%, the lowest since November 2020, and college education by 0.3% to 8%. Rent will fall by 0.4% to 9%, the lowest since January 2021.

Also, median home price growth expectations decreased to 2.8% in July from 2.9% in June. Meanwhile, consumers also see lower inflation in three years at 2.9% from a previously expected 3% and in five years at 2.9% from 3%.

Economic Activity Improves

The US economic growth for the first quarter saw a slight upward revision on Thursday, June 27, 2024. The Bureau of Economic Analysis data  came in line with market expectations .

Gross domestic product (GDP) increased by 1.4% quarter-on-quarter annually in the three months ending March 31, 2024. This marked a slowdown from the 3.4% growth observed in the last quarter of 2023.

This latest revision elevated the GDP growth from the second estimate of 1.3%. The initial estimate had reported a 1.6% increase.

Year-over-year, the US economy grew by 2.9% in the first quarter of 2024, slowing from the 3.1% growth in the previous quarter.

Factory, Labor, And Wages Trends

Manufacturing activity displayed mixed results, though multiple districts showed a brighter outlook for the sector.

The labor market showed signs of easing nationwide. Most districts reported slight to moderate increases in overall employment. This albeit with a reduced sense of urgency among firms in their hiring efforts. However, recruiting and hiring skilled workers remained challenging.

Wage growth remained moderate, with candidates showing less resistance to wage offers. Many firms adjusted their compensation packages to offset higher labor costs. They incorporated measures like remote work options instead of wage increases, reduced sign-on bonuses, or other enhancements.

Price trends indicated modest overall increases, with input costs stabilizing or slowing for manufacturers while continuing to rise for service sector businesses.

Factors such as fuel costs, wages, and insurance contributed to price growth. Sales prices increased at a slower rate than input prices, as businesses grappled with passing on cost pressures due to heightened price sensitivity among consumers, thus impacting profit margins.

In the coming quarters, firms generally anticipate price increases, but at a slower pace compared to previous periods. Several districts reported a reduced number of firms expecting significant price hikes in the foreseeable future.

How Do Interest Rates Affect Crypto?

Bitcoin and other digital assets have demonstrated resilience in a rising interest rate environment. For instance, Bitcoin experienced remarkable growth of 2,000% in 2015 and 2016, during a period marked by rising interest rates.

Nevertheless, some experts argue that persistently high inflation, gas prices, and energy costs resulting from elevated interest rates may dampen risk appetite, potentially posing headwinds for cryptocurrencies.

Central Banks and Connection With Cryptocurrencies

Central banks wield significant influence, directly affecting money circulation and financial market stability. They have the power to modify interest rates, which, in turn, affects the borrowing rates for financial and banking institutions. Recently, central banks in major developed economies, such as the Fed, ECB, and BoE, have increased interest rates in response to widespread inflation.

The increasingly intertwined relationship between cryptocurrencies and these macroeconomic and monetary shifts is noteworthy. In particular, the decisions to raise interest rates, especially by the Fed, have direct repercussions on the cryptocurrency markets.

In simpler terms, the Fed’s more assertive stance has cast a shadow over cryptocurrencies. This has an impact on market sentiment as tighter monetary policies loom.

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