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Will the Fed Cut Interest Rates to Prevent a US Recession and Economic Chaos?

By:W, Leah
Last updated:08/12/2024
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The US recession scare is intensifying, fueled by escalating stock market volatility. Over the past month, most stocks have suffered significant losses, and the economic data released in recent weeks has done little to bolster market stability.

As the economy teeters on the brink, the question looming large is whether the Federal Reserve will intervene to avert a crisis. Will the Feds step in to steady the ship, or will the markets be left to weather the storm? The odds may not be in the economy’s favor, but all eyes are on the Fed’s next move.

US Recession Odds Rise: Key Factors Explained

An earlier assessment by market analyst Game of Trades illuminated significant trends signaling an imminent economic downturn. Firstly, the S&P 500 index is poised for a substantial correction following nearly a year of robust gains, which have propelled leading firms to unprecedented heights amidst sky-high valuations.

Mirroring the stock market’s dynamics, the digital asset ecosystem, including Bitcoin (BTC), may experience similar adjustments, given its correlation with traditional markets. The looming potential for a simultaneous stock and cryptocurrency market sell-off is further underpinned by trends in the yield curve, which Game of Trades highlights as steeply inverted, hinting at a possible US recession.
Moreover, the Shiller PE Ratio, a gauge of market valuation over the past 150 years, has reached its zenith, underscoring the overvaluation of the stock market. This is evident in the soaring valuations of companies like NVIDIA, which recently surpassed $3 trillion, and MicroStrategy’s robust growth performance.

Lastly, the VIX Chart, a barometer of market volatility, is indicating heightened uncertainty and could prompt the Federal Reserve to intervene swiftly with an emergency interest rate cut.

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Investors Can Plan Ahead

Recessions are a recurrent phenomenon in many advanced economies, and experts view any potential US recession as a necessary and long-awaited economic reset, particularly given its status as the world’s largest financial market.

Amidst concerns over potential market turbulence, there is a heightened expectation for the Federal Reserve to take decisive action. However, some companies, such as MicroStrategy, are taking proactive measures by investing in viable hedges against the depreciation of fiat currencies. MicroStrategy has chosen Bitcoin as its preferred hedging instrument, while other investors prefer gold.

While direct investment in Bitcoin through spot ETFs is not yet legally permitted in the US, efforts to promote Bitcoin adoption continue. Notably, Morgan Stanley has enabled its brokers to trade Bitcoin-related products, and there are reports that Wells Fargo is also exploring the possibility of launching a Bitcoin ETF. These developments signify a growing acceptance and integration of digital assets into traditional financial systems.

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