Chances of 0.50% Fed Rate Cut Increase to 45% Ahead of Next Week’s Meeting
Just a day ago, it seemed highly probable that the U.S. Federal Reserve would reduce its benchmark fed funds rate by 25 basis points at its upcoming meeting. However, the situation has swiftly evolved. This shift in expectations comes as recent economic indicators paint a mixed picture. The August jobs report indicated a strong labor market, while both the Consumer Price Index (CPI) and the Producer Price Index (PPI) reports this week revealed lingering inflationary pressures.
A report by Wall Street Journal’s Nick Timiraos, known for his well-connected sources within the Fed, threw a curveball into the anticipated rate cut scenario. The article suggested that the decision on the magnitude of the rate cut remained uncertain. Various experts weighed in on the debate, with opinions split. Jon Faust, a former senior advisor to Fed Chair Jerome Powell, indicated that the decision was finely balanced. Esther George, the former president of the Kansas City Federal Reserve, highlighted the possibility of a 50 basis point cut, given the Fed’s previous swift policy adjustments.
Following the publication of the article, the likelihood of a 50 basis point rate cut next week surged, as per CME FedWatch data. The probability climbed from the high teens to over 40%, with current odds standing at 45%. This development had ripple effects on the financial markets, with U.S. stocks recovering from earlier losses to end the day on a positive note. Bitcoin also experienced a brief uptick, reaching its highest level in over a week at $58,400 before retracing slightly to $57,800.
While conventional wisdom suggests that looser monetary policy tends to benefit risk assets like bitcoin, the cryptocurrency’s current market conditions introduce complexities. Some analysts caution that an accelerated pace of rate cuts by the Fed, signaling concerns about economic weakness, could exert downward pressure on bitcoin prices. The evolving dynamics within the financial landscape underscore the intricate interplay between macroeconomic policies and digital asset valuations.
