An economist has warned that cryptocurrency markets may be underestimating the likelihood of rapid monetary policy shifts from the US Federal Reserve, suggesting investors may be caught off guard by the pace of interest rate cuts.
Timothy Peterson told Cointelegraph on Friday that “markets are underpricing the likelihood of rapid rate cuts in the coming months on the part of the Federal Reserve.”
Expectations of Faster Cuts
Peterson argued that the current market consensus does not align with historical precedent.
“There has never been a gradual reduction in rates like that currently envisioned by the Fed,” he explained.
According to him, the more likely scenario is a sharper shift in policy, which could trigger sudden moves in asset prices.
“It will jolt Bitcoin and alts up substantially, and I think that will happen in the next 3-9 months,” Peterson added.
His comments arrive in the wake of the Fed’s first rate cut of 2025, implemented on September 17.
The central bank opted for a 25 basis point reduction, a move that had been widely expected by the markets.
The CME FedWatch Tool showed a 96% probability of such a cut before the announcement, with only a small chance of a larger 50-point move.
Bitcoin’s Reaction to the Fed’s Decision
Ahead of the announcement, Bitcoin briefly surged to $117,000 before retreating.
At the time of publication, the world’s largest cryptocurrency was trading at $115,570, according to CoinMarketCap data.
Despite the pullback, Bitcoin remains up just over 1% over the past 30 days.
The broader market is now anticipating another 25 basis point cut at the Fed’s next meeting on October 29.
Data from CME shows traders pricing in a 91.9% chance of another quarter-point cut, with only an 8.1% chance that rates remain unchanged.
Fed Guidance Remains Cautious
While Fed officials have suggested there may be two more rate cuts this year, Chair Jerome Powell has been careful not to commit to a fixed trajectory.
“We’re not on a pre-set path,” Powell said, reinforcing the central bank’s view that decisions will remain data-dependent.
That uncertainty has left markets grappling with competing forecasts.
Diverging Views Among Institutions
Financial institutions were split on what the Fed would deliver in September.
Standard Chartered expected a more aggressive 50 basis point cut, while Goldman Sachs CEO David Solomon had anticipated a smaller reduction.
The Fed ultimately aligned with the latter expectation, but the debate underscores how difficult it is to predict the central bank’s moves.
Implications for Crypto Investors
Lower interest rates generally provide support for risk-on assets like cryptocurrencies.
As bonds and traditional savings products become less appealing, investors often look toward higher-yielding or speculative assets.
Peterson’s warning suggests that if the Fed accelerates its rate cuts, cryptocurrencies could see a sharp rally.
However, the same uncertainty that drives speculation also adds risk for traders who bet heavily on one outcome.
With the next meeting just weeks away, all eyes remain on the Fed’s guidance and the market’s reaction.