As the Federal Open Market Committee (FOMC) convenes today, all eyes in the crypto market are fixed on the Federal Reserve’s upcoming announcements. Scheduled events include the Fed Interest Rate Decision and the FOMC Statement at 2:00 PM ET, followed by Fed Chair Jerome Powell’s press conference at 2:30 PM ET. These announcements are anticipated to have substantial implications for both cryptocurrencies and the broader financial markets.
Anticipations in the Crypto Market
Market participants are largely expecting a rate cut. According to the CME FedWatch Tool, a significant 97.5% anticipate the Federal Reserve will implement a 25 basis points (bps) rate cut. This expectation aligns with recent economic indicators and reflects a broad consensus that the Fed will persist with its cautious approach to monetary easing. Althea Spinozzi, Head of Fixed Income Strategy at Saxo Bank, notes, “The Federal Reserve is expected to cut the Fed funds rate by 25 basis points at the November meeting, aligning with market expectations and following a weaker-than-expected nonfarm payroll report.”
Federal Reserve’s Measured Approach
The Federal Reserve is anticipated to maintain a cautious approach, focusing on gradual rate cuts rather than abrupt policy shifts. Chair Jerome Powell is expected to emphasize a data-dependent and restrained policy stance, considering the nuanced dynamics of the current economic environment. Spinozzi adds, “The Fed is likely to continue its measured approach, emphasizing gradual rate cuts rather than drastic policy shifts. Chair Jerome Powell is expected to highlight a data-dependent and restrained policy stance.”
Inflationary Concerns and Economic Indicators
While headline inflation appears to be easing, core components indicate persistent pressures. The Consumer Price Index (CPI) increased by 2.4% year-over-year in September, marking the lowest rate since February 2021. However, critical sectors such as shelter and services continue to experience elevated prices, with shelter prices rising by 4.9% year-over-year and services excluding energy increasing by 4.7%. Spinozzi highlights, “The core PCE inflation rate—a key Fed measure—has stabilized at an annualized 2.3% over both three- and six-month averages but continues to run above the Fed’s 2% target.” This persistent inflation could exert upward pressure on overall inflation, complicating the Fed’s efforts to meet its target.
Labor Market Resilience
The labor market remains robust despite recent disruptions from hurricanes and strikes. The unemployment rate stands firm at 4.1%, and temporary layoffs have declined in October. Wage growth, however, is showing signs of cooling. The Employment Cost Index (ECI) for Q3 came in 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 Growth and Future Concerns
Overall, the US economy has demonstrated unexpected resilience. The third-quarter GDP grew by 2.8% annualized, and personal consumption rose by 3.7%, marking 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.
Political Influences and Fiscal Policies
Adding to the complexity is the US presidential election. A victory by Donald Trump could significantly influence fiscal policies, thereby impacting the Fed’s longer-term rate path. 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 the Trump election is the key focus. Experts expect that the Trump presidency could lead to policies that underpin inflation, such as tax cuts and increased fiscal spending, potentially forcing the Fed to keep rates elevated.
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 is in restrictive territory, and the Fed has scope to keep cutting rates back to a more neutral level to give the economy a little more breathing space to continue growing strongly.” 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.
Conclusion and Market Implications
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 the Bitcoin and crypto markets.
At press time, Bitcoin traded at $75,080.
