Fed official just flashed a bullish Bitcoin signal as chances of a July rate cut jump

Federal Reserve governor Christopher Wallace just flashed a bullish signal for Bitcoin.

On Friday, he said that inflation isn’t flaring up the way people feared, which means the US central bank should “move now, don’t wait” to cut interest rates.

According to Wallace, the Fed is in a position to cut rates “as early as July.”

Chances of a July rate cut jumped to 13% from 6% on Polymarket.

A rate cut would be a boon for Bitcoin. Lower interest rates tend to incentivise investors to bet on risk-on assets like cryptocurrencies.

Wallace’s comments comes as investors are holding their breath. Since tensions erupted between Israel and Iran on June 3, Bitcoin has fallen about 3% to around $104,000, while Ethereum has slid nearly 10% to about $2,500.

In the past 24 hours, both assets have remained spellbound.

Welcome words

Rate cuts tend to revive risk appetite.

That’s because when interest rates drop, borrowing gets cheaper and money flows easily through the economy. That extra liquidity tends to trickle into riskier corners of the market as investors hunt for higher returns.

Moreover, lower rates also show that the Fed is making decisions to activate the economy. That kind of signal gives investors more confidence to take risks again.

For crypto, a market that thrives on momentum and speculation, this type of psychological tailwind can be a powerful force for prices to rise.

A July cut, even a small one, could be the spark that pulls sidelined capital back into Bitcoin and Ethereum.

Monetary policy’s role

In fact, monetary policy tends to play a big role in Bitcoin’s price action, according to Bitcoin analyst James Check.

In 2022, after Russia invaded Ukraine, Bitcoin fell by 40% in the first year. But there was more at play than just the conflict, said Check.

“I should note that the US Federal Reserve was aggressively raising interest rates, and most markets were in a bear market,” Check wrote in his Monday newsletter, Checkonchain.

Sticky inflation

To be sure, Wallace’s isn’t the popular view at the Federal Reserve.

On Wednesday, Fed Chair Jerome Powell said that the money printer isn’t coming back anytime soon, and that inflation remains stubborn.

This suggests interest rates will stay high — which when meshed in with the conflict in the Middle East — doesn’t bode well for cryptocurrencies.

Moreover, investors don’t seem to be betting on a rate cut in July. Fed Funds futures contracts tracked by the CME Group’s FedWatch tool suggest that there is less than a 15% chance of a rate cut next month.

Those chances rise to 71% ahead of the Fed’s September meeting and to 86% in October.

Pedro Solimano is a markets correspondent based in Buenos Aires. Got a tip? Email him at psolimano@dlnews.com.