Important takeaways
- The Fed is expected to cut interest rates by 25 basis points to a range of 4.25% to 4.5%.
- Increased market volatility is possible as the event looms.
The Federal Reserve is scheduled to announce its rate decision during its meeting on Wednesday. Economists are widely predicting that the Fed will cut rates for the third time in a row, lowering the federal funds rate to a target range of 4.25% to 4.5%.
Another rate cut of 25 basis points would result in a total reduction of a full percentage point since September. The Federal Reserve first cut interest rates by 0.5 percentage points in September and then made another cut of 0.25 percentage points in November.
According to CME FedWatch Toolthere is now a 95.4% chance of a 25 basis point rate cut, while the probability of keeping current rates at 4.6%. This reflects a slight adjustment from yesterday, when the probability of a rate cut was around 98%.
But compared to last week, expectations for a rate cut have strengthened, especially after November’s inflation data met expectations and job figures showed strength.
According to the Bureau of Labor Statistics (BLS), the US economy added 227,000 jobs in November, beating expectations and showing a rebound from months disrupted by hurricanes and strikes.
Employment growth has been strong, particularly in sectors such as health care and tourism. Solid job gains contribute to a positive economic outlook, which could influence the Fed’s interest rate decision-making.
Last week, the BLS reported that November’s CPI rose 2.7% year over year, in line with expectations. Immediately after the report, the odds of a rate cut in December rose to around 96%.
Future interest rate cuts are less likely
Inflationary pressure has stabilised, but has not yet returned to desired levels. The Fed has been working to bring inflation down from a peak of 9.1% in June 2022, and while progress has been made, the current rate is still above their 2% target.
Jacob Channel, senior economist at LendingTree, said in a statement to CBS News that the Fed is likely to continue with a 25 basis point rate cut at its next meeting, but that there may not be further cuts in the immediate future.
The economist also noted potential changes in economic policy under President-elect Donald Trump, which “could cause a resurgence in inflation or otherwise throw the economy out of balance.” In this scenario, the Fed may choose to hold off on further rate cuts to assess their effects on the economy.
Crypto markets face volatility ahead of Fed rate decision
Crypto markets are bracing for increased volatility as the Federal Reserve’s interest rate decision approaches. Bitcoin (BTC) has fallen 2% in the last 24 hours, while Ethereum (ETH) has fallen 4%, according to CoinGecko data.
The total market capitalization of the crypto market currently stands at $3.8 trillion, reflecting a decrease of 4% over the past day.
Bitcoin fell to $104,000 after hitting a high of $107,000 on Tuesday. The pullback triggered a broader decline in altcoins, with Ripple (XRP), Solana (SOL), Doge (DOGE), and Binance Coin (BNB) also experiencing small losses.
Markets can become more turbulent as the main event looms.
Among the top 100 cryptoassets, Pudgy Penguins’ PENGU token posted the biggest losses of 55%, likely due to heavy selling pressure following its airdrop to NFT holders, which triggered a steep decline in both token value and the Pudgy Penguins NFT floor price.
