Today marks a pivotal moment for the financial and cryptocurrency sectors as the Federal Open Market Committee (FOMC) convenes to deliberate on monetary policy. With the Fed Interest Rate Decision and the FOMC Statement scheduled for release at 2:00 PM ET, followed by Fed Chair Jerome Powell’s press conference at 2:30 PM ET, these events are anticipated to have substantial repercussions for both traditional and digital financial markets.
What The Crypto Market Can Expect
The crypto community is largely focused on the likelihood of a rate cut. According to the CME FedWatch Tool, a striking 97.5% of market participants predict a 25 basis points (bps) reduction in the Federal Reserve rate. This expectation is in line with recent economic data and suggests a consensus that the Fed will continue its careful approach to monetary easing.
Althea Spinozzi, Head of Fixed Income Strategy at Saxo Bank, comments, “The Federal Reserve is anticipated to lower the Fed funds rate by 25 basis points at the November 7 meeting. This aligns with market forecasts and follows a weaker-than-anticipated nonfarm payroll report.”
Gradual Approach to Monetary Policy
The Federal Reserve is expected to adopt a cautious strategy, focusing on incremental rate cuts rather than abrupt policy alterations. Chair Powell is likely to emphasize a data-driven and careful policy perspective, addressing the intricate dynamics of the current economic environment. Spinozzi elaborates, “The Fed is poised to maintain its steady approach, emphasizing gradual rate reductions rather than drastic policy shifts. Chair Jerome Powell is expected to underscore a data-dependent and restrained policy stance.”
Inflation Dynamics and Economic Indicators
While headline inflation appears to be moderating, core components indicate ongoing pressures. The Consumer Price Index (CPI) rose by 2.4% year-over-year in September, marking the lowest rate since February 2021. However, essential sectors like shelter and services continue to exhibit high prices, with shelter costs up 4.9% year-over-year and services excluding energy increasing by 4.7%.
Spinozzi notes, “The core PCE inflation rate—a crucial Fed measure—has stabilized at an annualized 2.3% over both three- and six-month averages but remains above the Fed’s 2% target.” Persistent inflation in these areas could put upward pressure on overall inflation, complicating the Fed’s efforts to reach its target.
Labor Market Resilience
The labor market remains robust despite recent disruptions from natural disasters and labor strikes. The unemployment rate holds steady at 4.1%, and temporary layoffs have decreased in October. Wage growth appears to be slowing; the Employment Cost Index (ECI) for Q3 surprised on the downside at 0.8% quarter-over-quarter, the softest since Q2 2021. Year-over-year, the ECI remains elevated at 3.9%, significantly above the Global Financial Crisis (GFC) average of 2.16%. Weekly jobless claims are also well below the post-GFC average, indicating sustained labor market strength.
Economic Resilience and Future Concerns
The U.S. economy has demonstrated unexpected resilience, with third-quarter GDP growing by 2.8% annualized and personal consumption rising by 3.7%, the strongest quarter since early 2023. However, concerns about the sustainability of this growth persist. Real disposable income has softened, and household savings are declining, potentially limiting future consumer spending.
Adding to the complexity is the impending U.S. presidential election. A victory by Donald Trump could significantly influence fiscal policies, thereby impacting the Fed’s longer-term rate trajectory. James Knightley, Chief International Economist at ING, remarks, “The Federal Reserve will be mindful of how its actions and commentary could influence financial markets that may already be experiencing quite volatile conditions.”
Implications for Crypto Traders
For crypto traders, Jerome Powell’s commentary during the FOMC press conference on anticipated inflationary effects stemming from potential policy shifts is a focal point. Experts anticipate that a Trump presidency could lead to policies that support inflation, such as tax cuts and increased fiscal spending, potentially forcing the Fed to maintain elevated rates.
Despite the political backdrop, the Fed is expected to proceed with the rate cut. ING analysts suggest, “Even after September’s 50bp rate cut, monetary policy remains in restrictive territory, and the Fed has scope to continue cutting rates back to a more neutral level to give the economy a little more breathing space to sustain growth.”
The current target range for the Fed funds rate is 4.75% to 5%, well above the estimated ‘neutral’ level of 3% to 3.5%. The consensus is that the Fed has room to normalize its policy, especially with the labor market cooling.
The crypto market will be closely monitoring not just the rate decision—which appears largely priced in—but also the Fed’s commentary on inflation, economic growth, and the potential impacts of the presidential election. Any indications from Chair Powell regarding future policy shifts could have significant implications for Bitcoin and crypto markets.
At press time, Bitcoin was trading at $75,080.
