Economist Predicts ‘Sell the News’ Scenario Following Fed Meeting

The potential 25 basis point rate cut by the Fed during the September 18 meeting is already priced in by the market and may lead to a ‘sell the news’ reaction in risk assets. This was stated by Johns Hopkins University economist Steve Hanke in a conversation with The Block.

“The market already expects a [25 basis point] cut, which means the actual reduction might be disappointing and trigger a sell-off. Conversely, a 50 basis point cut is not anticipated. If it were to occur, it would likely lift the market,” he noted. 

As the Fed meeting approaches, traders have become more optimistic about a 50 basis point cut. According to CME FedWatch, 47% believe in such an outcome, although on September 12, the figure did not exceed 28%. 

Hanke also added that in the coming months, Bitcoin and other risk assets will face increased volatility ahead of the US elections. Given market uncertainty, he prefers fixed-income investments such as ten-year Treasury bonds and gold.

According to 21Shares Research analyst Lina ElDib, a more substantial rate cut could potentially have a significant impact on crypto assets. However, it would also cause caution among investors, as the Fed’s actions might signal a recession.  

“A more aggressive rate cut risks shocking the markets, as it would signal a recession warning. Investors will trade cautiously to withstand market conditions that could cause short-term damage,” ElDib clarified. 

Former New York Fed President Bill Dudley stated that there are strong grounds for a 50 basis point cut. In his observation, the current rate is 150-200 points above the so-called neutral rate. 

“So the question is: why not just start?” the former official pondered. 

As of August, annual inflation in the US stood at 2.5% compared to 2.9% the previous month. The consumer price index rose by 0.2%, as it did in July.

However, the report was overshadowed, as always, by details: prices for services excluding housing and energy rose again, and the rent index increased by a maximum of 0.49% since January.

According to Bitwise, in October-November, the digital asset market will shift to growth due to the end of macroeconomic and political uncertainty in the US.

Earlier, Standard Chartered concluded that Bitcoin could reach a new high by the end of the year, regardless of the outcome of the US presidential elections.