Sen. Warren advises 75bps Fed cut on recession fears 

Despite rhetoric that the U.S. economy is strong, three Democratic senators have called on the Federal Reserve to implement aggressive monetary policy changes.

Crypto-skeptic Massachusetts U.S. Senator Elizabeth Warren called on the Federal Reserve and its chairman, Jerome Powell, to cut interest rates by 75 basis points to reduce recession risks. Warren’s letter, which was also signed by fellow Senators Sheldon Whitehouse and John Hickenlooper, warned of potential economic downturns that smaller funding cuts could cause.

If the Fed is too cautious in cutting rates, the risk of our economy sliding into recession will unnecessarily increase. Many economists have warned of this risk since July… The Committee should consider more aggressively preempting interest rates to reduce potential risks to the labor market.

Senator Elizabeth Warren briefs Fed on rate cuts

The document, dated September 16, was released less than 48 hours before the Federal Open Market Committee’s meeting on Wednesday, September 18.

Markets expect Fed Chair Jerome Powell to make a moderate turn at the FOMC meeting, but the rate cut the central bank would opt for remained unclear as of press time.

What are the odds?

The CME FedWatch tool showed a 61% probability of a 50 basis point cut and a 39% probability of a 25 basis point cut. Last week, the same tool gave a 14% probability of a 50 basis point rate cut.

The 50 bps option has also been influential in crypto prediction venues. Polymarket data indicated a 53% chance of a 50 basis point announcement, followed by a 45% chance of a 25 bps move. Previously, users had predicted a 78% chance of a 25 bps pivot. Bettors had placed over $40.5 million on the Polygon-based platform for this month’s FOMC decision.

Bettors are betting on Fed interest rate decision | Source: Polymarket Fed’s impact on cryptocurrency market

If the Fed lives up to expectations and announces a funds rate cut, experts believe liquidity will flow into riskier assets like cryptocurrencies. Market participants are still debating how an aggressive or modest pivot could inform the Fed’s outlook, with the former signaling recession concerns and the latter a tighter grip on inflation.

Horizen Labs CEO and co-founder Rob Viglione told crypto.news that the Fed rate cut is likely to spur a bullish Q4 for digital assets like Bitcoin (BTC) and Ethereum (ETH). The fourth quarter has historically recorded higher crypto prices compared to the middle and end of Q3.

In the short term, we could see a price rally, particularly in Ethereum and Bitcoin, but this could also lead to increased market volatility. In the long term, a prolonged period of low-rate environment could spur more innovation and investment in blockchain technology and crypto-related initiatives.

Rob Viglione, CEO and co-founder of Horizen Labs