Bank of America says the US economy is headed for instability as Donald Trump takes office, despite strong employment and retail sales data being released. This has brought a new focus on the future of the crypto market. Will it be successful?
According to reports by SexBank of America said on January 20. that employment data, retail sales, and core inflation are holding strong, with core inflation at 3.2%. However, this number for inflation is above the mark, which means that the Fed has no more room to cut rates.
In December 2024, the Fed cut rates by 25 basis points, following a 25 basis point cut in November and a 50 basis point reduction in September. Fed Chairman Jerome Powell said at a meeting in December that further rate cuts will not occur unless economic data improves.
The sentiment against further rate cuts is further reflected in the Polymarket polls, where more than 96% of punters believe there will be no rate cut in January.
Now, Bank of America believes that with the upcoming presidency and, with it, Trump 2.0 policies, there could be real security and fiscal uncertainty, and it could affect economic managers in the different way.
Trump's Defense Policies
Protectionist policies are government actions, ie, tariffs or taxes on imports and trade restrictions, undertaken to protect local industries from foreign competitors.
During Donald Trump's first term, these had a major impact on the stock market. For example, tariffs on Chinese goods and steel helped US manufacturers with less competition. However, they raised costs for companies that depended on imports, such as car makers and high-tech companies, as reported by the Tax Foundation in May 2024. Such had a continuous effect on the ups and downs of the market, especially during the trade war with China.
Reuters further reported that the same could now return through Trump's comeback with a 60% tariff on Chinese products, which will affect the economy; this will increase prices and create uncertainty for investors in the global market.
What is in store for the crypto market?
The future course of crypto will largely depend on the interplay between Trump's policies and the decisions of Fed. While protectionist policies usually have their impact on traditional financial markets through inflation, supply chain disruptions, and investor sentiment, they will have a spillover effect on crypto markets.
Protection measures usually raise the costs of goods and services, which are usually provided to consumers by companies.
For example, if inflation remains high, Bitcoin (BTC), often seen as an inflation hedge, is likely to continue gaining traction, especially since the president has been very supportive of Bitcoin Reserve. Additionally, if the Fed does not cut rates to prevent inflation, crypto may become popular as a store of value.
While many monitors positive about the Bitcoin Reserve in the making, some inside the crypto market are also voting against it. As of January 20, Polymarket voters only 57% confident that the Bitcoin Reserve would be created within the next 100 days.
In addition, Trump's crypto-friendly policies may also pave the way for the adoption of cryptocurrencies by supporting pro-crypto laws, which may be bent. a lawsuit against crypto exchanges that the SEC had imposed under the Biden administration.
Overall, although the protectionist policies could increase prices for some imports of technical goods, slowing the development of blockchain, Trump's pro-crypto stance would counteract some of this by promoting the growth of the sector.
