Amidst the hullabaloo of US President Donald Trump’s call for the most sizable interest rate reduction in history, Bitcoin has escalated beyond the $109K mark. Trump has been vocal about his belief that the national central bank’s interest rates are excessively high and has been advocating for another substantial cut.
His proposition this time was rather audacious, suggesting the Federal Reserve should minimize the rates by a minimum of three points. Trump asserts that the elevated rates increase the nation’s interest expense. On a macro level, this holds true. Data from the Kobeissi Letter reveals that the annual interest expense on US debt has crossed $1.2 TRILLION in the past year. The daily interest now surpasses $3.3 billion.
Should the Federal Reserve heed Trump’s advice, he claims it could result in a yearly saving of $360 billion. However, Kobeissi Letter analysts highlight that the only significant debt is the public one, currently around $29 billion. Their evaluation suggests that a 300bps cut on the total amount could save “$290B x 3 = $870B/year.”
Despite the encouraging figures, there are potential negative implications associated with such a dramatic rate cut, particularly concerning inflation. The proposed cut would be thrice the size of the largest recorded cut in March 2020, when the rates were reduced by 100bps. This would be implemented amidst an already burgeoning US economy, growing at +3.8% YoY, which could result in an inflation surge beyond 5%.
The Kobeissi Letter also cautions that mortgage rates could plummet from 7% to 4% in a market that has already witnessed a +50% price surge since 2020. They anticipate another potential price surge of 25%. Despite these potential repercussions, such a move could prove advantageous for riskier assets like Bitcoin. Bitcoin’s price has seen an approximate 1% increase in the last 24 hours, and following Trump’s proposal, it now hovers around $110,000.
