- Markets are evenly divided over the Federal Reserve’s next rate cut, assigning roughly a 50% probability to either a 25 or 50 basis points reduction this Wednesday.
- Bitcoin retreats from the $60,000 mark as the Fed’s uncertain policy direction weighs on investor sentiment.
In an unusual twist, the upcoming week finds financial markets caught in a guessing game over the Federal Reserve’s next move on interest rates — a scenario that has effectively stalled bitcoin’s recent bounce.
Anticipation is high that on September 18, the Fed will initiate its so-called easing phase with an interest rate reduction, a historically bullish signal for risk assets like bitcoin.
Fed Rate Cut Size: A Tug-of-War
However, the ambiguity deepens regarding the magnitude of this expected rate cut, setting up a potential surge in market volatility following the decision. At the time of writing, futures on federal funds reflect an even split: a 50% chance each for a 25 basis points cut narrowing the benchmark to 5%–5.25%, or a more aggressive 50 basis points trim pushing it to 4.7%–5%.
Bitcoin’s climb from recent troughs near $52,530 has faltered amid this policy uncertainty. From a local peak of approximately $60,660, the largest cryptocurrency by market capitalization has slipped to around $58,700.
Insights from Market Strategist Marc Chandler
Marc Chandler, the lead market strategist at Bannockburn Global Forex and author of Making Sense of the Dollar, remarked in correspondence with CoinDesk, “Hardly ever does the market enter a Fed meeting with this level of indecision — split evenly between a 25bps and 50bps cut.”
He further elaborated, “A 50bps reduction might spook risk assets, as it could reflect the Fed’s growing worry about the economy, with an implicit admission that a July cut was overdue.”
Why a 50 bps Cut Could Rock Risk Markets
Multiple analysts warn that a half-point drop could trigger a risk-off environment, dampening appetite not only for stocks but also for cryptocurrencies. This heightened possibility gained traction after a Wall Street Journal piece by Nick Timiraos highlighted the debate over the cut’s size. Meanwhile, some Fed policymakers have publicly hinted at a larger reduction, boosting risk asset optimism.
Chandler offered additional context: “The market had largely settled on a 25bps cut until what some think was a deliberate Fed leak pushed the 50bps option into the spotlight on Thursday. This maneuver boosted the odds of not just one but potentially two half-point cuts alongside a quarter-point reduction across the remaining meetings this year.”
He advised traders to pay close attention to the Fed’s forthcoming economic projections and interest rate summary, which could shift expectations further.
| Fed Funds Target Rate | 5.0% (range: 5.0%-5.25%) | Projected below 3% by end of 2024 |
| Unemployment Rate | 4.3% (July), 4.2% (August) | Considered the Fed’s long-run equilibrium |
Chandler mused rhetorically, “Will the Fed adjust its stance given that unemployment is already hovering around its long-term equilibrium, even as the market prices in a sub-3% funds rate next year?”
