Goldman Sachs, the world's second largest investment bank, predicts that the Federal Reserve may cut interest rates twice in the next two years, as early as the third quarter of 2024.

Interest rates are generally closely related to investors' risk preferences. According to a report by Reuters on December 11, Goldman Sachs predicts that the Fed will make its first rate cut in December 2024, but this forecast has now been brought forward to the third quarter of 2024 due to the desire to mitigate inflation.

Goldman Sachs expects that the Fed's two rate cuts will bring the interest rate to 4.875% by the end of 2024, rather than the previously predicted 5.13%. This change is due to data released on December 8 showing that the results of the U.S. labor market were stronger than expected. The monthly employment report from the U.S. Department of Labor showed that the unemployment rate in the U.S. dropped from 3.9% in October to 3.7%.

According to Reuters, traders are quoted as saying that although the labor market is performing stronger than expected, it will not prevent the Fed from cutting rates. They expect the first rate cut to occur in the first quarter of 2024, two quarters earlier than Goldman's prediction.

Excerpts from Goldman Sachs' explanation of the Fed's rate cut are as follows:

The federal funds rate, determined by the Federal Open Market Committee, serves as a guide for bank loans in the United States. It is set within a range limited by upper and lower levels. Currently, the federal funds rate is between 5.25% and 5.50%.

When the Fed's interest rate falls, borrowing becomes cheaper, thereby stimulating the risk appetite of the economy and financial market traders, including cryptocurrency. Raising interest rates is usually used to curb inflation, reduce the purchasing power of the legal currency, and thus prevent capital from flowing into the cryptocurrency market.

The cryptocurrency market is directly affected by the Fed's interest rate hikes, as they influence investor behavior. When the Fed raises interest rates, traditional investment asset classes such as bonds and other fixed-income assets become more attractive to investors due to their stable returns. In turn, investors may shift funds away from volatile assets such as cryptocurrencies, leading to reduced demand and potential price corrections or declines.

Once interest rates fall, the market's risk tolerance increases, and funds begin to flow from asset classes with lower volatility to stocks and the cryptocurrency market.

In the face of escalating inflation, the Fed began tightening rates in March 2022, raising rates from the low range of 0%-0.25%, with the most recent increase in July. However, with the expected rate cuts in 2024 and the Bitcoin halving event in April, both could serve as catalysts for a price rebound after the Bitcoin halving.

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