JPMorgan Predicts 25bps Rate Cut by Fed Amid Economic Shifts

JPMorgan predicts a 25 basis point interest rate cut by the Federal Reserve at its September 17 meeting, citing recent economic shifts and labor market trends. This could boost risk asset investments, including cryptocurrencies like Bitcoin and Ethereum. The potential rate cut could lead to increased volatility and impact the valuation of Layer 1 and DeFi assets.

JPMorgan's US trading desk has warned clients that a widely expected Federal Reserve rate cut on September 17 could mark a near-term peak for risk assets, including cryptocurrencies. The bank's note, signed by desk head Andrew Tyler, suggests that the cut could lead to a "Sell the News" event, where investors pull back to consider macro data and the Fed's reaction function, among other factors Crypto At Risk — JPMorgan Warns Fed Cut Could Spark Crash^[1].

The Fed's next policy meeting is scheduled for September 16-17, with a statement and press conference set for September 17. Standard Chartered, citing recent labor market data, now expects the Fed to deliver a 50-basis-point move . This expectation, along with the potential for a "catch-up" rate cut, has hardened expectations for policy easing but also raised the specter of a growth scare.

The macro backdrop has turned more complicated, with August payrolls barely growing and the unemployment rate rising to a near four-year high. These developments have supported gold and, by extension, Bitcoin, as traders lean into the idea of easier money and a softer dollar. However, a mechanical "equities down, vol up" impulse around the decision could transmit into crypto assets, amplifying intraday swings.

JPMorgan advises investors to consider hedging strategies, such as VIX call spreads or VXX longs, and to increase gold exposure as cut expectations sap the dollar. The bank's "lower-conviction Tactical Bullish" stance is maintained, but it urges investors to prepare for potential volatility shocks.

Bitcoin, trading at $112,739 at press time, has bounced back toward the $112k area alongside rate-cut bets. However, a smaller or caveated cut could deliver a "sell the news" pattern, with equities and high-beta assets like crypto marking lower first before reassessing the glide path.

The potential rate cut could lead to increased volatility and impact the valuation of Layer 1 and DeFi assets. Investors should remain vigilant and monitor the Fed's statement and the market's reaction.