FOMC Preview: What The Crypto Market Can Expect From The Fed
07 November 2024 - 1:00PM
NEWSBTC
As the Federal Open Market Committee (FOMC) meets today, the crypto
market’s focus is on the Federal Reserve’s forthcoming
announcements. Scheduled for 2:00 PM ET are both the Fed Interest
Rate Decision and the FOMC Statement, with Fed Chair Jerome
Powell’s press conference following at 2:30 PM ET. These events are
poised to have significant implications for cryptocurrencies and
broader financial markets. What The Crypto Market Can Expect Market
participants overwhelmingly anticipate a rate cut. According to the
CME FedWatch Tool, 97.5% expect the Federal Reserve to implement a
25 basis points (bps) rate cut. This expectation aligns with recent
economic indicators and reflects a consensus that the Fed will
continue its cautious monetary easing. “The Federal Reserve is
expected to cut the Fed funds rate by 25 basis points at the
November 7 meeting. This aligns with market expectations and
follows a weaker-than-expected nonfarm payroll report,” Althea
Spinozzi, Head of Fixed Income Strategy at Saxo Bank, notes.
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Harris Win: Bitwise CIO The Fed is likely to maintain a measured
approach, emphasizing gradual rate cuts over abrupt policy shifts.
Chair Powell is expected to underscore a data-dependent and
restrained policy stance, focusing on the nuanced dynamics of the
current economic landscape. 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.” While
headline inflation appears to be easing, core components suggest
persistent pressures. The overall Consumer Price Index (CPI)
increased by 2.4% year-over-year in September, the lowest since
February 2021. However, critical sectors like shelter and services
continue to see elevated prices. Shelter prices are up 4.9%
year-over-year, and services excluding energy rose by 4.7%. “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,” Spinozzi highlights.
Persistent inflation in these sectors could exert upward pressure
on overall inflation, complicating the Fed’s efforts to achieve its
target. 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
is showing signs of cooling; the Employment Cost Index (ECI) for Q3
surprised to 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. Related
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Run Overall, the US economy has exhibited unexpected robustness.
Third-quarter GDP grew by 2.8% annualized, and personal consumption
rose 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 US presidential election. The victory by
Donald Trump could significantly influence fiscal policies, thereby
impacting the Fed’s longer-term rate path. “The Federal Reserve
will be mindful of how its actions and commentary could influence
financial markets that may already be experiencing quite volatile
conditions,” James Knightley, Chief International Economist at ING,
remarks. 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. 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. Featured image from Shutterstock, chart
from TradingView.com
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