US Fed Rate Cut (Image Source: Times Now Digital)
New Delhi: The U.S. Federal Reserve made its first interest rate cut in four years on September 18 by lowering the benchmark fed funds rate by 50 basis points to 4.75 per cent-5 per cent. This decision marks a shift after a period of aggressive rate hikes aimed at controlling inflation. However, this move has sparked concerns among market experts, particularly in the cryptocurrency world.
Arthur Hayes, co-founder of BitMEX and Chief Investment Officer of Maelstrom, warned that this rate cut could trigger a crash in risk assets, including cryptocurrencies. He explained that while rate cuts generally boost liquidity, which tends to benefit assets like Bitcoin (BTC), the current economic environment is different.
In an exclusive interview with CoinDesk, Hayes said “Lowering rates is a bad idea right now because inflation remains an issue in the US.” He argued that by making borrowing cheaper, the government is essentially fueling inflation, which has been difficult to bring down.
Hayes also pointed out that this rate cut could impact the global financial system, particularly affecting the Japanese yen. He noted that narrowing the interest rate gap between the U.S. and Japan could lead to a sharp rise in the yen’s value. This would, in turn, cause investors to back out of the “yen carry trades” — a popular strategy where investors borrow yen at low rates to invest in higher-yielding assets elsewhere.
“The second reason is that the interest rate differential between the U.S. and Japan narrows with rate cuts. That could lead to sharp appreciation in the yen and trigger unwinding of the yen carry trades,” BitMEX co-founder Arthur Hayes added.
Despite the immediate concerns, Hayes hinted that the world might be witnessing the beginning of the end for central banks like the Federal Reserve. According to him, central banks have increasingly lost control over inflation and broader economic stability.
“Central banks are losing their grip,” Hayes said to CoinDesk during the Token2049 conference in Singapore. As the Fed embarks on this new phase of rate cuts, some experts, including Hayes, believe that the traditional tools used by central banks to steer the economy may no longer be as effective, especially in the face of growing economic complexities.
