A run of weaker economic data has prompted Goldman Sachs to sharply lower its expectations for a Federal Reserve rate hike in September, potentially creating a more favorable backdrop for bitcoin.
Goldman now considers a September rate increase “very unlikely,” a view that could provide additional support for bitcoin as the cryptocurrency remains trapped in a narrow range.
Bitcoin was trading around $63,500, gaining roughly 1% since midnight UTC. The asset has spent more than a month fluctuating between approximately $62,000 and $66,000.
Goldman’s revised outlook follows softer retail sales and employment data, along with signs of easing inflation, according to Chief Economist Jan Hatzius, as reported by Bloomberg.
Hatzius said the bank expects inflation to continue moving lower through the remainder of the year rather than accelerate again. He also argued that markets are still pricing in a Federal Reserve policy path that is too restrictive.
Changes in interest rates affect borrowing conditions and the flow of fiat liquidity through financial markets, making them an important factor for risk assets such as bitcoin. Higher rates typically weigh on cryptocurrencies, as demonstrated during the Fed’s aggressive tightening campaign in 2022.
Lower borrowing costs, on the other hand, can boost risk appetite and liquidity. The crypto market’s recovery after the Fed’s emergency response to the March 2020 COVID-19 crash illustrates the potential impact of easier monetary policy.
CME FedWatch data showed markets pricing in a 30.6% chance of a 25-basis-point rate increase at the Fed’s September meeting, which would take the target range to 3.75%-4%.
The majority of traders expect the central bank to leave rates unchanged, with the probability of a September hike falling after recent data indicated that inflation continued to cool as economists had anticipated.
