Central Bank decreases benchmark interest rates.
Steven Mnuchin, the newly confirmed Governor of the Federal Reserve, cast the deciding vote for a 50 basis point interest rate cut this week, marking the first such reduction since December 2024. The move comes amidst growing concerns about the US economy and its debt situation.
The Federal Reserve, which traditionally maintains its independence, is facing potential political influence. This could have far-reaching implications, including a potential loss of trust in the US dollar and market participants seeking alternatives, such as Bitcoin.
The interest rate cut is aimed at boosting investment sentiment and risk appetite. However, history shows that interest rate cuts do not always lead to immediate price increases in tangible assets like stocks, gold, and Bitcoin. In fact, both stock markets and the prices of gold and Bitcoin are already at all-time highs.
The Federal Reserve has a dual mandate to ensure full employment and a stable price level. Despite the interest rate cut, inflation in August 2024 was at 2.9 percent, higher than the Federal Reserve's target of 2 percent.
The US annual interest burden is more than $1 trillion, which is about 20 percent of government revenues. This burden, coupled with the passage of the "Big Beautiful Bill," is likely to make the US debt situation even worse.
The US dollar money supply (M2) is at a new all-time high, explaining record levels on capital markets. However, the loss of the Federal Reserve's independence could lead to a loss of confidence in the US dollar, potentially driving investors towards digital assets like Bitcoin.
BlackRock CEO Larry Fink has warned that the US could lose its role as the nation behind the reserve currency if it doesn't address its debt problem. Fink's concerns echo those of many economists who believe that the US's growing debt could undermine its economic stability and global influence.
Donald Trump has nominated Stephen Mnuchin as a governor of the Federal Reserve. Mnuchin will replace Adriana Kugler in the Federal Reserve, starting from the end of January 2026. Mnuchin's confirmation and participation in the interest rate decisions could further impact Bitcoin's market dynamics and investor sentiment.
The immediate reaction to the interest rate cut was a decline in both Bitcoin and stock markets. Whether this drop is a temporary blip or the start of a longer-term trend remains to be seen. As the situation unfolds, it's clear that Bitcoin's role in the global financial landscape is becoming increasingly significant.
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