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With the Federal Open Market Committee (FOMC) meeting today, the cryptocurrency market’s focus is on the Federal Reserve’s upcoming announcements. The Fed’s interest rate decision and FOMC statement are scheduled for 2:00 PM ET, and will be followed by Fed Chairman Jerome Powell’s press conference at 2:30 PM ET. These events are expected to have significant implications for cryptocurrencies and the broader financial markets.
What the cryptocurrency market can expect
Market participants overwhelmingly expect interest rates to be cut. According to the Chicago Mercantile Exchange Feedwatch tool97.5% expect the Fed to cut interest rates by 25 basis points. These forecasts are consistent with recent economic indicators and reflect the consensus that the Fed will continue cautious monetary easing.
“The Fed is expected to cut the federal funds rate by 25 basis points at its November 7 meeting. “This is consistent with market expectations and follows a weaker-than-expected non-farm payrolls report,” Althea Spinuzzi, head of fixed income strategy at Saxo Bank, said. Notes.
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The Fed is likely to maintain a measured approach, focusing on gradual cuts in interest rates over sudden shifts in policy. Chairman Powell is expected to emphasize a data-driven and restrained policy stance, focusing on the nuanced dynamics of the current economic landscape. “The Fed is likely to continue its measured approach, focusing on gradual interest rate cuts rather than radical policy shifts,” Spinuzzi adds. Chair Jerome Powell is expected to highlight a data-driven and restrained policy stance.
While headline inflation appears to be declining, fundamental components point to continued pressures. The overall CPI rose 2.4% year-on-year in September, the lowest level since February 2021. However, critical sectors such as shelter and services continue to see prices rise. Shelter prices rose 4.9% year over year, and services excluding energy rose 4.7%.
“Core PCE inflation — a key measure for the Fed — held at an annualized rate of 2.3% above the three- and six-month averages but still above the Fed’s 2% target,” Spinuzzi highlights. Continued inflation in these sectors could put upward pressure on overall inflation, which would complicate the Fed’s efforts to achieve its goal.
The labor market remains strong despite recent disruptions caused by hurricanes and strikes. The unemployment rate holds at 4.1%, and temporary layoffs declined in October. Wage growth shows signs of slowing; The third quarter Employment Cost Index (ECI) surprised by falling 0.8% QoQ, the weakest since Q2 2021. On a yearly basis, the ECI remains high at 3.9%, well above the Global Financial Crisis (GFC). ). ) with an average of 2.16%. Weekly unemployment claims are also well below the post-global financial crisis average, indicating continued labor market strength.
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Overall, the US economy showed unexpected strength. GDP in the third quarter grew by 2.8% year-on-year, and personal consumption rose by 3.7%, the strongest quarter since early 2023. However, concerns about the sustainability of this growth remain. Real disposable income has declined, and household savings have declined, which may limit consumer spending in the future.
Adding to the complexity is the US presidential election. A Donald Trump victory could significantly impact fiscal policies, thus influencing the path of the Fed’s long-term interest rates. “The Fed will be mindful of how its actions and comments impact financial markets that may already be experiencing very volatile conditions,” said James Knightley, chief international economist at ING. comments.
For cryptocurrency traders, Jerome Powell’s comment during the FOMC press conference about the expected inflationary effects of Trump’s election is the main focus. Experts expect a Trump presidency to lead to policies that support inflation, such as tax cuts and increased fiscal spending, which could force the Fed to keep interest rates high.
Despite the political backdrop, the Fed is expected to continue cutting interest rates. “Even after the 50 basis point rate cut in September, monetary policy is in constrained territory, and the Fed has room to continue lowering interest rates to a more neutral level to give the economy more breathing room to continue growing strongly,” ING analysts point out.
The current target range for the federal funds rate is 4.75% to 5%, well above the “neutral” level of 3% to 3.5%. The consensus is that the Fed has the space to normalize its policy, especially as the labor market slows.
The cryptocurrency market will be closely monitoring not only the interest rate decision – which appears to have been largely priced in – but also the Fed’s commentary on inflation, economic growth, and the potential effects of the presidential election. Any signals from Chairman Powell regarding future policy shifts could have major implications for the Bitcoin and cryptocurrency markets.
At press time, Bitcoin was trading at $75,080.
Featured image from Shutterstock, chart from TradingView.com