Arthur Hayes Warns Fed Rate Cut Could Lead to Market Collapse

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BitMEX co-founder Arthur Hayes warned that risk assets like cryptocurrencies are likely to plummet soon after the Federal Reserve announces its expected rate cut later today, marking the first reduction in over four years

“I believe that the Fed is making a significant error by lowering rates while the US government is printing and spending money at unprecedented peacetime levels,” Hayes stated during his keynote address at Token2049 in Singapore on Sept. 18. “While many anticipate a rate cut, thinking that it will boost the stock market and other assets, I foresee a market crash in the days following the Fed’s announcement.”

The Dollar-Yen Dynamic: Arthur Hayes's Key Takeaway From Token2049 Keynote

Arthur Hayes Claims Rate Cuts Heighten Inflationary Pressures

He expressed that rate reductions are ill-advised as inflation remains a concern in the US, primarily driven by government expenditure, which amplifies persistent price pressures. Making loans cheaper only exacerbates inflation, he argued.

He criticized the Federal Reserve for even contemplating rate cuts while U.S. government spending is on the rise and dollar issuance is increasing.

Currently: Arthur Hayes on the main stage pic.twitter.com/r4Nhs751Q6

— Zach Humphries (@Z_Humphries) September 18, 2024

Hayes cautioned that numerous investors and traders might be blindsided. He anticipates a contrary outcome, asserting that “the markets are going to collapse” in the days following the Federal Reserve’s decision.

Market May Experience Yen Carry Trade Crash Again

Hayes predicts that any rate cut could be between 50 to 75 basis points. If such a decrease occurs, it will “narrow the interest rate gap between the US dollar and the Japanese yen,” he noted.

Consequently, the yen could sharply appreciate, potentially leading to the unwinding of the yen carry trade, as stated by Hayes. He warned that the “financial stress” experienced earlier this year when the yen fell from $162 to $142 in just two weeks could resurface after a rate cut.

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