The Latest News - Federal Reserve Cuts Interest Rates

Drew McFinance
December 21, 2024

Hello McFinancers!

The latest in financial news: the Federal Reserve has another interest rate cut but markets drop after the announcement, Amazon looking to expand its reserve to include Bitcoin, a major German bank looking to create its L2 on Ethereum, Google’s quantum computing and its impact on security and cryptocurrencies, and the rise of phishing scams for crypto wallets.

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Federal Reserve Cuts Interest Rate

The Federal Reserve concluded 2024 with its third consecutive rate cut, lowering the federal funds rate by 0.25 percentage points to a range of 4.25%-4.5%. Despite easing inflation, November's 2.7% Consumer Price Index indicates continued challenges in achieving the Fed's 2% target. Fed Chair Jerome Powell and economists expect only two rate cuts in 2025, reflecting concerns over sticky inflation and potential economic impacts from President-elect Donald Trump's proposed policies, including new tariffs that may reignite inflation. Mortgage rates remain near 20-year highs, and while credit card and loan rates have eased slightly, overall borrowing relief is limited.

Lower rates can modestly reduce borrowing costs, potentially benefiting those with variable-rate loans. However, high mortgage rates and inflationary pressures could keep housing and consumer spending under pressure. Investors should monitor the Fed's 2025 actions and adjust portfolios to navigate potential inflation risks tied to upcoming fiscal policies. Defensive sectors, inflation-resistant assets, and diversified holdings may help protect against economic uncertainty.

Amazon Looking To Expand To Bitcoin

Amazon shareholders are advocating for the company to allocate at least 5% of its assets into Bitcoin, citing its strong performance as a hedge against inflation and a driver of shareholder value. The proposal, supported by the National Center for Public Policy Research, points to Bitcoin's 134% surge this year and MicroStrategy's 500% stock rise, far outpacing Amazon’s 49%. Shareholders argue that Bitcoin's long-term appreciation potential outweighs its short-term volatility and could complement Amazon's $88 billion cash reserve.

If Amazon adopts Bitcoin, it could bolster its stock's appeal by aligning with innovative financial strategies and diversifying its treasury. For investors, this may signal a broader corporate shift towards crypto adoption, potentially driving demand for Bitcoin and boosting crypto-related investments. Adding crypto-exposed assets or maintaining a diversified portfolio can position investors to benefit from potential future gains while managing associated risks.

Deutsche Bank Creating Its Own Layer 2

Deutsche Bank, Germany's largest bank with $1.5 trillion in assets, is launching Project Dama 2, a Layer 2 blockchain on Ethereum using ZKsync technology. The project aims to resolve compliance and privacy challenges in public blockchains by incorporating trusted verifiers and regulatory oversight. Set to deliver a minimum viable product by 2025, this initiative focuses on improving efficiency and reducing costs in regulated financial services while addressing risks like illicit transactions.

This development highlights increasing institutional adoption of blockchain technology, signaling confidence in Ethereum's scalability and utility. For investors, it reinforces Ethereum's position as a foundational layer in the evolving financial ecosystem, potentially boosting long-term value. Furthermore, as regulatory-compliant blockchain solutions gain traction, exposure to projects like Ethereum or companies driving blockchain innovation could offer significant growth opportunities in a rapidly transforming financial landscape.

Quantum Computing Makes A Major Leap

Recent advancements in quantum computing, including Google’s unveiling of the powerful Willow chip, have sparked concerns about Bitcoin's cryptographic security. Quantum computers, capable of solving complex problems in minutes, pose potential threats to any SHA-256 encryption. With quantum computers being able to solve the complex problems in a reasonable timeframe that could impact all major entitites that use the SHA-256 encryption. Including governments, businesses, and individuals. As quantum computers get more qubits it reduces solving time from months to days to hours to minutes. For cryptocurrencies, research indicates that upgrading Bitcoin to quantum-resistant protocols could require up to 305 days of partial downtime, significantly impacting its operations. Although large-scale quantum attacks aren’t imminent, experts emphasize the importance of preparing now to safeguard the cryptocurrency’s future.

Investors should monitor developments in quantum computing and their implications for cryptocurrencies and other businesses. A potential breach in Bitcoin’s encryption could shake market confidence, driving price volatility and a reevaluation of crypto security. Diversifying portfolios with assets outside of cryptocurrencies and investing in projects actively working on quantum-resistant solutions could provide a hedge against these risks. Preparing for a quantum future might ensure long-term resilience in the rapidly evolving digital asset landscape.

Crypto Phishing Scams

Ledger hardware wallet users are the latest targets of a sophisticated phishing scam. Cybercriminals send fake emails mimicking official Ledger communications, claiming a "security alert" due to a data breach. These emails direct victims to fraudulent websites where users are tricked into entering their 24-word recovery phrases, granting scammers full access to their crypto wallets. In response, Ledger has reiterated that it will never ask for recovery phrases and urged users to stay vigilant, especially during the holiday season when such scams spike.

For cryptocurrency investors, this scam highlights the critical importance of safeguarding recovery phrases and practicing caution with unsolicited communications. Loss of wallet access can result in significant financial losses. Investors should ensure they use only official channels for communication and updates. Diversifying storage methods, such as using multiple wallets or cold storage, can add extra layers of protection against such attacks.

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* Investing can be unpredictable and volatile. Investors should always do proper due diligence to determine if assets are right for them. We are not licensed tax or financial professionals.