Odds of 50 Basis Point Fed Rate Cut Next Week Jump to 45%

Regarding job market conditions, the August employment situation, as depicted in last week’s jobs report, stayed strong. On the other hand, the recent CPI and PPI reports from this week indicate that inflation is persisting a tad longer than anticipated.

According to a report by Wall Street Journal’s Nick Timiraos, who is sometimes called “Nikileaks” because of his reliable sources within the Federal Reserve, there is ongoing discussion about the potential size of the interest rate reduction, as stated in an article published Thursday afternoon.

As a crypto investor, I find myself on the fence about the current situation. Just like Jon Faust, previously a senior advisor to Fed Chair Jerome Powell, I believe the decision is a tight one. In fact, Esther George, president of the Kansas City Federal Reserve for over a decade until last year, agrees. She points out that the Fed has acted swiftly in tightening policy beyond the “neutral” rate, which suggests a quick move towards easing might be logical.

Immediately after the article, there was an increase in the likelihood that the Federal Reserve might reduce interest rates by half a percentage point next week. According to CME FedWatch, which monitors positions in short-term market interest rates, this probability shot up from the teens to over 40%. At the time of publication, these odds have slightly increased to approximately 45%.

As a researcher exploring the relationship between monetary policy and risk assets like Bitcoin, I often find that more accommodative monetary policies are generally perceived as beneficial for these assets. However, during Bitcoin’s current bear market, such assumptions can shift rapidly. Some analysts suggest that if the Federal Reserve were to expedite interest rate cuts, potentially signaling their concerns about a sluggish economy, Bitcoin prices might further decline.