The Bank of England lowered the interest rates from 5.25% to 5% earlier today in the first cut since the start of the Covid-19 pandemic in March 2020.
Consequently, the UK’s central bank has followed the example set by the ECB and the Bank of Canada earlier this summer, prompting questions about the Federal Reserve’s next move.
BoE Turns the Corner
Ever since the pandemic broke out in March 2020 and the subsequent effects that were felt in the following years, most global central banks undertook severe actions to try to fight the galloping inflation by raising the interest rates to multi-year highs.
The Bank of England was at the forefront as it hiked the rates to 5.25% within the next few years. Whether or not those actions were actually successful in fighting inflation, especially in the UK, remains questionable, but the central bank decided to pivot from its strategy earlier today.
As reported by the BBC, the rates were lowered to 5% in the first cut since March 2020. According to BoE’s governor, Andrew Bailey, the decision was based on the fact that “inflationary pressures have eased enough.”
However, he added,
“We need to make sure inflation stays low and be careful not to cut interest rates too quickly or by too much.”
The UK’s move comes less than two months after the ECB’s decision to set such an example among Western central banks. In early June, the European Central Bank cut the rates to 3.75% from 4%.
Shortly after, the Bank of Canada followed suit. Moreover, it lowered the rates once again to 4.5% in late July, unlike the ECB, which decided to keep them unchanged during the summer.
What About the Fed?
With three major central banks already showing the first signs of strategy changes, all eyes are set on the US Federal Reserve. Its Chair, Jerome Powell, has refrained from promising to do so after they stopped increasing them less than a year ago.
For now, the expectations pinpoint late September, during the next FOMC meeting, when the Fed could actually lower the rates.
“If we were to see inflation moving down … more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting,” Powell said on Wednesday.
Interest rates typically have a direct effect on the cryptocurrency market. In general, lower rates mean that money is cheaper to borrow and could be allocated into more risk-on assets like Bitcoin and vice-versa. As such, a potential rate cut by the world’s largest economy could have a massive impact on the crypto market.
However, BTC has remained stable in the past few hours after the BoE’s decision was announced.
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