The Bank of England follows Europe and Canada in cutting interest rates, will the Fed join?

The Bank of England cut interest rates from 5.25% to 5% early today in the first cut since the start of the Covid-19 pandemic in March 2020.

As a result, the UK central bank has followed the example set by the ECB and the Bank of Canada earlier this summer, raising questions about the Federal Reserve’s next move.

BoE turns the corner

Since the outbreak of the pandemic in March 2020 and the after effects felt in the following years, most of the world’s central banks took severe actions to try to fight the galloping inflation by raising interest rates to multi-year highs years.

The Bank of England led the way, raising rates to 5.25% over the next few years. Whether or not these actions were successful in the fight against inflation, especially in the UK, remains questionable, but the central bank decided to change its strategy today.

As reported by the BBC, rates were cut to 5% in the first cut since March 2020. According to BoE Governor Andrew Bailey, the decision was based on the fact that “inflationary pressures have relieved enough.”

However, he added,

“We need to make sure inflation stays low and be careful not to cut interest rates too quickly or too much.”

The UK’s decision 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 rates from 4% to 3.75%.

Shortly thereafter, the Bank of Canada followed suit. It also cut rates again to 4.5% at the end of July, unlike the ECB, which decided to keep them unchanged over the summer.

What about the Fed?

With three major central banks already showing the first signs of strategy changes, all eyes are on the US Federal Reserve. Its chairman, Jerome Powell, has refrained from promising to do so after they stopped raising them less than a year ago.

For now, expectations point to late September, during the next FOMC meeting, when the Fed could cut rates.

“If we were to see inflation come 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 Wednesday.

Interest rates usually have a direct effect on the cryptocurrency market. Lower rates generally mean that money is cheaper to borrow and could be allocated to riskier assets like Bitcoin and vice versa. As such, a possible rate cut by the world’s largest economy could have a massive impact on the crypto market.

However, BTC has remained flat in the last few hours after the BoE’s decision was announced.

SPECIAL OFFER (Sponsored) Binance Free $600 (Exclusive to CryptoPotato): Use this link to register a new account and receive an exclusive welcome offer of $600 to Binance (full details).

2024 LIMITED OFFER on BYDFi Exchange – Up to $2888 Welcome Reward, Use this link to register and open a 100 USDT-M position for free!