BlackRock Warns Fed Rate Cuts Won’t Be as Deep as Expected

• BlackRock believes the Federal Reserve’s interest rate cuts will be more moderate than market expectations due to inflation concerns.
• Coinbase denies allegations of issuing Bitcoin IOUs to BlackRock, reaffirming transparency with fully auditable on-chain transactions.

Recently, BlackRock said that the Federal Reserve’s much-anticipated interest rate decreases may not be as deep as the market currently expects, according to Reuters.

According to detailed research from BlackRock’s Investment Institute, while the bond market expects cuts of around 120 basis points by the end of this year and up to 250 basis points by 2025, these forecasts may be overblown. The institute stated:

“As the Fed readies to start cutting, markets are pricing in cuts as deep as those in past recessions. We think such expectations are overdone.”

The asset management conglomerate believes that the US economy is still exhibiting signs of resiliency. Although inflation has slowed, it has not fallen sufficiently to warrant such drastic cuts. This evaluation questions the current market attitude, which appears to be wagering on a more aggressive monetary policy reaction.

Inflation and Caution Shape BlackRock’s Outlook on Interest Rate Cuts 

BlackRock’s research underlines the complexities of today’s economic situation. A continuously growing economy, persistent budget deficits, and structural issues such as continued geopolitical tensions are all expected to keep inflation rising in the midterm.

According to BlackRock, these factors indicate that the Federal Reserve will take a more cautious approach to interest rate cuts. The firm contends that comparing the current scenario to previous recessions, when larger and faster layoffs were customary, may be inappropriate given these new factors.

Furthermore, BlackRock expressed worries about the possible hazards associated with a sharp, rapid interest rate cut. Such changes could increase volatility in financial markets, which are already highly unstable.

The company suggested that a rapid adjustment in interest rates could disrupt asset prices because financial markets may not have completely factored in the effects of a slower inflationary reduction.

On the other hand, as we previously reported, Coinbase, a major cryptocurrency exchange, has come under fire for allegedly issuing Bitcoin IOUs to BlackRock. These speculations suggested that BlackRock was engaging in market manipulation by using Coinbase as a conduit to get indirect exposure to Bitcoin.

However, Coinbase categorically disputed the allegations. In a recent announcement, the exchange underlined that all of its transactions are completely on-chain, transparent, and auditable by the public.

The company also reiterated that there is no evidence to substantiate the claim that it is assisting market manipulation in collaboration with BlackRock.

Moderate Fed Rate Cuts Could Temper Bullish Crypto Market Expectations

The possibility that the Federal Reserve will implement more modest interest rate decreases than previously anticipated could have a significant impact on major crypto markets. Usually, as investors hunt better returns, lower interest rates can drive liquidity into riskier assets like cryptocurrency.

On the other hand, if the Fed’s cuts are less forceful, as BlackRock advises, the expected flood of funds into the crypto market might be constrained.

This might dampen short-term optimistic expectations, which would cause more cautious trading as investors wait to see how a slower drop in inflation and a more cautious Fed policy would influence the larger financial scene, including digital assets.