Research Points to Fed as Most Dovish Central Bank in 2024

• Anticipated Rate Cuts by the Fed to Impact Crypto and Traditional Markets
• Cheap Fiat Liquidity: A Common Love for Crypto and Traditional Markets
• 2024 Predictions for the Fed
• Implications for the U.S. Economy and Dollar
• Effect on Risk Assets and Global Trade
• Other Advanced National Central Banks to Follow Suit
• Japan's Central Bank Eases Monetary Policy
• 'Known Unknown' Scenarios Pose Risks

Anticipated Rate Cuts by the Fed to Impact Crypto and Traditional Markets

There is an expectation for the Federal Reserve to reduce rates by 100 basis points next year, making it the most dovish among advanced nations' central banks. This is likely to have implications on the dollar, often encouraging risk-taking in both crypto and traditional markets.

Cheap Fiat Liquidity: A Common Love for Crypto and Traditional Markets

Both crypto and traditional markets have a universal appreciation for cheap fiat liquidity. The U.S. Federal Reserve, recognized as the world's most influential central bank, is predicted to take measures that encourage this in the following year.

2024 Predictions for the Fed

Deutsche Bank Research suggests that in 2024, the Federal Reserve is estimated to be the most dovish among advanced nation central banks. Traders are expecting at least a 100-basis point (1 percentage point) reduction in interest rates from the current 5.25% to 5.5% range. This is likely to affect the appeal of the U.S. dollar as a relatively high-yielding asset.

Implications for the U.S. Economy and Dollar

The U.S. economy and inflation rate are forecasted to slow down next year according to ING, this allows the Fed to pursue a more relaxed monetary policy. The Bank of America has also predicted a changing tide for the greenback, stating that an adjustment towards equilibrium can be expected in the coming year.

Bank of America strategists have expressed that despite expectations of the U.S. performing relatively well compared to other major economies, the prospect of an eventual economic landing and corresponding easing from the Federal Reserve should provide relief to currencies globally.

Effect on Risk Assets and Global Trade

A weak dollar often provides a boost to risk assets, including bitcoin, as observed in the latter half of 2020 and early 2021. The dollar, as a global reserve currency, plays a considerable role in global trade and non-bank borrowing. When the dollar strengthens, it usually leads to worldwide financial tightening, discouraging risk-taking, while the opposite is observed when it weakens.

Other Advanced National Central Banks to Follow Suit

The chart indicates that majority of advanced national central banks, led by the Fed, will cut rates in the following year, having rapidly increased them in the past 18-20 months to control inflation.

Japan's Central Bank Eases Monetary Policy

This unified easing could counterbalance potential rate increases by the Bank of Japan, a significant source of uncertainty for both crypto and traditional markets. The Japanese central bank has been gradually moving away from its ultra-easy monetary policy this year, although its benchmark rate remains below zero.

'Known Unknown' Scenarios Pose Risks

Bank of America strategists caution that heightened expectations for easing could disappoint and cause a sharp dollar rally should inflation rebound. They identify an upside growth/inflation driven rate shock originating in the U.S., a supply-driven upward oil price shock, and a downward growth shock from China as the most visible risks that could deviate from their base-case of weak USD.

Edited by Jonathan Stoker