FOMC Preview: What The Crypto Market Can Expect From The Fed

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As a seasoned market analyst with over two decades of experience under my belt, I’ve witnessed numerous economic cycles and their impact on various asset classes, including cryptocurrencies. Today, as the Federal Open Market Committee (FOMC) gathers, the anticipation is palpable in the crypto market, eagerly awaiting the Fed’s decisions and commentary.

Today’s meeting of the Federal Open Market Committee (FOMC) has crypto market watchers eagerly awaiting the Federal Reserve’s upcoming announcements. At 2:00 PM ET, we’ll see both the Fed Interest Rate Decision and the FOMC Statement, with a press conference by Fed Chair Jerome Powell scheduled for 2:30 PM ET. These events could carry substantial impacts on the crypto world and broader financial markets.

What The Crypto Market Can Expect

A vast majority of investors predict a small reduction in interest rates, as suggested by the CME FedWatch Tool, which shows that nearly 98% are anticipating a 0.25 percentage point (percent) cut from the Federal Reserve. This forecast aligns with current economic data and indicates widespread agreement that the Federal Reserve will proceed with its careful approach to monetary loosening.

According to Althea Spinozzi from Saxo Bank, it’s anticipated that the Federal Reserve will lower the Fed funds rate by a quarter of a percent during its meeting on November 7th. This move is in line with market forecasts and comes after a payroll report showing fewer jobs added than expected.

The Federal Reserve is anticipated to stick with a cautious strategy, prioritizing incremental interest rate decreases over sudden changes in policy. Chairman Powell is likely to stress a flexible and conservative approach, considering the delicate aspects of the current economic situation. Spinozzi further states, “The Fed will probably persist with its cautious strategy, focusing on gradual rate reductions instead of drastic policy transformations. Chair Jerome Powell is expected to underline a data-driven and restrained policy perspective.

Although headline inflation seems to be decreasing, the core indicators suggest ongoing price pressures. For instance, the annual increase in the Consumer Price Index (CPI) was 2.4% in September, which is its lowest since February 2021. However, essential sectors such as housing and services are still experiencing high prices. The cost of shelter has risen by 4.9% year-over-year, while the price of services excluding energy increased by 4.7%.

According to Spinozzi, the fundamental rate of PCE inflation, a significant indicator for the Federal Reserve, has remained steady at around 2.3% over the last three and six months. However, it persistently exceeds the Federal Reserve’s desired 2% level. If inflation persists in these areas, it could potentially increase overall inflation, making it more challenging for the Federal Reserve to reach its target.

Regardless of the recent challenges posed by hurricanes and work stoppages, the job market maintains its resilience. The unemployment rate remains steady at 4.1%, with temporary layoffs decreasing in October. While wage growth is beginning to slow, it’s worth noting that the Employment Cost Index (ECI) for Q3 fell short of expectations at 0.8% quarter-on-quarter, marking the softest growth since Q2 2021. On a yearly basis, the ECI remains high at 3.9%, noticeably higher than the average during the Global Financial Crisis (GFC) of 2.16%. The number of weekly jobless claims is also significantly lower than the post-GFC average, suggesting a robust and ongoing labor market.

All in all, the American economy has displayed unexpected resilience, with a 2.8% rise in third-quarter GDP on an annual basis – marking the strongest quarter since early 2023. Moreover, personal consumption increased by 3.7%, showcasing a significant uptick. Yet, doubts linger about the longevity of this growth surge, as real disposable income has weakened, and household savings are dwindling, which could curtail future consumer spending.

The U.S. presidential election adds another layer of complexity, as the outcome – particularly a win by Donald Trump – could shape future fiscal policies, potentially altering the Federal Reserve’s longer-term interest rate trajectory. James Knightley, Chief International Economist at ING, notes that the Fed will need to be cautious about its actions and statements, given the volatile nature of financial markets.

As a researcher focusing on cryptocurrency trading, I find myself closely following the commentary by Jerome Powell during FOMC press conferences. Specifically, his insights regarding anticipated inflationary effects stemming from the Trump presidency are of particular interest. Experts predict that the Trump administration’s policies, such as tax cuts and increased fiscal spending, could lead to an environment that fosters inflation. This might compel the Federal Reserve to maintain higher interest rates, which could have implications for my trading strategies.

Regardless of current political circumstances, it’s anticipated that the Federal Reserve will go ahead with the planned interest rate reduction. ING analysts argue, “Following the 0.5% cut in September, monetary policy remains somewhat restrictive. The Fed still has room to further reduce rates to bring them closer to a neutral level, offering the economy some additional growth leeway.

At present, the Federal Reserve’s desired range for the federal funds rate stands at 4.75% to 5%, significantly higher than their estimated “neutral” point of 3% to 3.5%. Most experts agree that the Fed still has some leeway to adjust its policy, particularly given the signs of a cooling labor market.

Experts will keep a close eye on not only the Federal Reserve’s rate decision (which seems to be already factored in) but also their comments about inflation, economic expansion, and any effects of the upcoming presidential election. Any hints from Chair Powell about future policy adjustments could carry substantial weight in the Bitcoin and cryptocurrency markets.

At press time, Bitcoin traded at $75,080.

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2024-11-07 20:03