FOMC Meeting Today to Announce Expected 25 Basis Points Rate Cut
As the Federal Open Market Committee (FOMC) convenes today, the crypto market is focused on the Federal Reserve's upcoming announcements. The Fed Interest Rate Decision and the FOMC Statement are scheduled for 2:00 PM ET, followed by a press conference with Fed Chair Jerome Powell at 2:30 PM ET. These events may significantly impact cryptocurrencies and financial markets.
Market Expectations
Market participants largely expect a rate cut. According to the CME FedWatch Tool, 97.5% anticipate a 25 basis points (bps) reduction in rates. This expectation aligns with recent economic data and reflects a consensus on continued cautious monetary easing.
Althea Spinozzi, Head of Fixed Income Strategy at Saxo Bank, notes that a 25 bps rate cut is anticipated at the November 7 meeting, driven by a weaker-than-expected nonfarm payroll report. The Fed is expected to adopt a gradual approach to rate cuts, emphasizing a data-driven policy stance amid current economic conditions.
Headline inflation appears to be easing, with the Consumer Price Index (CPI) increasing by 2.4% year-over-year in September, the lowest since February 2021. However, sectors like shelter and services still experience high prices, with shelter up 4.9% year-over-year and services excluding energy rising by 4.7%.
The core PCE inflation rate, a key measure for the Fed, has stabilized at an annualized 2.3%, remaining above the Fed's 2% target. Persistent inflation in critical sectors may complicate efforts to meet this target.
The labor market shows resilience despite disruptions from hurricanes and strikes. The unemployment rate is steady at 4.1%, and temporary layoffs have decreased in October. Wage growth is cooling, with the Employment Cost Index (ECI) for Q3 at 0.8% quarter-over-quarter, the slowest since Q2 2021. Year-over-year ECI remains elevated at 3.9%, above the Global Financial Crisis average of 2.16%. Weekly jobless claims are below post-GFC averages, indicating ongoing labor market strength.
The US economy demonstrated unexpected robustness, 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 sustaining this growth remain as real disposable income declines and household savings decrease, potentially limiting future consumer spending.
The upcoming US presidential election adds complexity; a potential victory by Donald Trump could significantly influence fiscal policies and the Fed's long-term rate trajectory. James Knightley, Chief International Economist at ING, indicates that the Fed will consider how its actions might affect already volatile financial markets.
Crypto traders are particularly focused on Powell’s comments regarding inflationary effects related to the Trump election, as such policies may lead to higher inflation and necessitate elevated rates. Despite political uncertainties, analysts suggest the Fed will likely proceed with the rate cut, aiming to normalize policy to support economic growth.
The current target range for the Fed funds rate is 4.75% to 5%, above the estimated neutral level of 3% to 3.5%. With a cooling labor market, there is room for further normalization.
The crypto market will closely monitor not only the rate decision but also the Fed's commentary on inflation, economic growth, and the presidential election's potential impacts. Any insights from Chair Powell regarding future policy shifts could significantly influence Bitcoin and other cryptocurrencies.
At press time, Bitcoin traded at $75,080.
