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.