- Japan’s severe stock crash rippled through global markets, causing significant drops in crypto and major indices worldwide.
- Experts criticise the US Fed for sluggish rate adjustments, influencing the market downturn, with urgent calls for significant rate cuts.
- Despite massive sell-offs, cryptocurrencies like Bitcoin and Ethereum have begun to recover some losses following Monday’s steep decline.
Yesterday’s market crash has left investors scratching their heads as to what caused the turmoil. Japan had experienced its second-worst stock crash on Monday, which spilled over into crypto and other financial markets.
Related: US$801 Million Liquidated as BTC Dips Below US$55K, SOL Drops 30%
Japanese stocks fell 12%, the ASX had its worst day since 2020 dropping 3%, while US indexes also took hits: the S&P was down 3%, the Nasdaq 3.4% and the Dow 2.6%.
There are several reasons for the crash, the Japanese yen carry trade is one, an inflated AI and tech bubble another, but many experts believe the US Fed has been too slow to act on interest rates. While many had expected several rate cuts in 2024, the Federal Reserve had decided to hold off on any cuts at least until September.
Calls for 0.75% Rate Cuts: But Not Everybody Agrees
Some experts are now calling for an urgent intervention to avoid further downturns. American economist Jeremy Siegel, Professor of Finance at the Wharton School of the University of Pennsylvania and Senior Economist at Wisdom Tree, is one of them.
Speaking to CNBC’s Squawk Box, Siegel called upon the Fed to cut rates immediately by 75 base points rates now and 75 in September.
The reasons are simple. The Fed says the long-term Fed Funds rate should be 2.8%. There are two variables that they look at to set the funds rate: unemployment and inflation.
Jeremy SiegelSiegel said that the US has “already blown beyond the Fed’s 4.2% long-term unemployment rate” and is close to the Fed’s inflation target, questioning why the Fed hasn’t lowered its “very restricted 5.33% Funds rate” at all. He argued that the funds rate should be 4% or less.
Others, like Egyptian-American economist and the Chief economic adviser at Allianz, Mohamed Abdullah El-Erian disagree. El-Erian warned that a rushed rate cut – a so-called ‘intermeeting cut’ as it’s between the July and September Fed meetings – would send a ‘panic signal’ to markets
To do an emergency cut would give the completely wrong signal to the marketplace.
Mohamed Abdullah El-ErianBTC, ETH Recover Some of Their Losses
The crash saw all crypto assets plummet over the weekend with the worst drops on Monday when Bitcoin fell briefly below US$50k (AU$76.64k) the lowest it has been since February.
While BTC lost heavily with total crypto liquidations topping US$1 billion, it wasn’t even the hardest hit. Ethereum, on the back of a Jump Crypto sell-off, dropped 25% week-on-week, going from US$3,313 (AU$5,076) in late July to as low as US$2,220 (AU$3,401) on Monday.
Related: Morgan Stanley to Offer Clients Spot Bitcoin ETFs IBIT and FBTC
At the time of writing ETH has recovered some of its losses, trading for US$2,520 (AU$3,870), BTC currently trades for US$56,022 (AU$86,034).
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