In summary
- Bitcoin‘s price rose on Friday afternoon, reaching its highest level since early September, surpassing $60,000.
- Traders are anticipating a large interest rate cut at the Federal Reserve’s next meeting, with a 43% chance of a 50 basis point cut.
- The Fed could cut interest rates by 100 basis points by the end of the year, with a possible 50 basis point cut in the coming months, which could influence the price of Bitcoin.
Bitcoin’s price rose on Friday afternoon, hitting its highest level since early September, as traders grew more confident that the Federal Reserve’s upcoming meeting would result in a large interest rate cut.
With Bitcoin’s price surpassing $60,000—rising 3.9% in the past few hours to $60,139.86, according to CoinGecko—the surge represented a reversal of September losses seen as government data stoked concerns about a weakening U.S. economy. For example, Bitcoin fell as low as $53,300 a week ago following a weaker-than-expected August jobs report.
The Federal Reserve is widely expected to cut its benchmark rate, easing monetary conditions for the first time since 2020. Traders had anticipated an initial 25 basis point cut after Fed officials signaled a measured approach to lowering borrowing costs.
Traders now view the Fed’s decision next week as a relative unknown. The chance of a 50-basis-point rate cut strengthened to 43% on Friday, up from 28% a day ago, according to CME Group.
The shift in sentiment appears to be linked to the Wall Street Journal and Financial Times whose articles suggested that Fed officials are indecisive. As inflation has slowed toward the U.S. central bank’s stated 2% target, the Fed’s focus has shifted from consumer prices to the health of the labor market.
A 50-basis-point rate cut could more quickly bring the Fed’s benchmark rate into neutral territory, where it does not restrict the economy too much at a time when inflation is clearly slowing. At the same time, analysts believed that starting a series of rate cuts with a larger reduction could “spook markets,” suggesting the Fed is more worried about a recession.
“Looser monetary policy and lower real interest rates tend to be negative for the dollar while benefiting its competitors like gold and Bitcoin,” Zach Pandl, Head of Research at Grayscale, told Decrypt. “However, (…) if the Fed cuts by 50 basis points, markets could interpret this as a signal that the Fed is concerned about the health of the economy, which paradoxically could be negative for risk assets, including Bitcoin.”
Macro analyst Jim Bianco (aka X) said on Twitter that the “maximum uncertainty” toward the Fed’s next move was reflected in gold prices, which hit a record high on Friday along with changes in Fed futures markets.
Last week, Federal Reserve Board Governor Christopher Waller said the size and speed of rate cuts will depend on incoming economic data. After an inflation report released Wednesday, market traders estimated with 85% probability that the Fed will start with a smaller rate cut.
The rise in core inflation, which excludes food and energy prices, reinforced bets for a smaller rate cut. That’s because there’s a chance inflation could rise again if the Fed cuts rates too soon, supporting the labor market without fully taming inflation.
The Fed, however, quickly raised rates to tame a decades-long spike in inflation that peaked in 2022. In an interview with the Wall Street Journal, former Fed Vice Chairman Donald Kohn argued that the U.S. central bank could quickly cut rates in the name of risk management.
At the conclusion of the Fed meeting next week, officials will release a set of quarterly economic projections. And a so-called dot plot released by the Fed will indicate where each official on its policymaking committee thinks interest rates should be by year-end.
While the market is expecting the Fed to cut interest rates by 100 basis points based on its previously released dot plot, there are only three meetings left in the year. That means Fed officials are likely to agree to a 50 basis point cut at some point in the next few months.
The timing of that 50-basis-point rate cut could carry a subtle message about where the Fed thinks the economy is headed. As next week’s meeting approaches, traders appear to be increasingly betting that the Fed would want to settle that question once and for all.
Edited by Andrew Hayward
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