Federal Reserve’s Unconventional Rate Shift Anticipated

In an unexpected turn, the Federal Reserve is set to reduce its policy interest rate by a quarter of a point, even as doubts linger over employment and economic growth statistics. A recent survey by Reuters reveals that economists almost unanimously expect the Federal Reserve to lower the target interest rate range to between 3.75% and 4%. This move is largely viewed as standard amidst the scant availability of crucial economic data.

How Is the Fed Adapting to Missing Data?

The ongoing partial federal government shutdown in the U.S., now in its 29th day, has severely hampered the Federal Reserve’s ability to access key employment data that traditionally inform its decisions. As a result, Fed officials must make critical choices based on data from August. In that month, the unemployment rate climbed to 4.3%, though a reduction in the foreign-born workforce contained further spikes. Despite Fed officials’ belief in a generally stable job market, large-scale layoffs at companies like Amazon and a rise in state unemployment claims suggest prudence is needed.

Additionally, the recent Consumer Price Index (CPI) report for September showed a dip in housing prices, hinting at eased inflation pressures. Concerns over the labor market, coupled with this inflation downtime, bolster predictions of an interest rate reduction.

What Are the Market Expectations?

The CME Group’s FedWatch tool offers strong evidence that the Fed will cut rates by 25 basis points, with nearly 100% certainty. Another cut of the same magnitude is widely expected in December, holding an 89% likelihood.

Today’s rate decision from the Federal Reserve is eagerly awaited at 21:00. Chair Jerome Powell is expected to share his views on the economy and provide indications for the December meeting in a press conference shortly thereafter. As one Fed official pointed out, the lack of officially released inflation data has left them steering the economy “in a fog.”

“Navigating the economy with missing data makes for a foggy journey,” a Fed official stated.

According to Standard Chartered’s economist Steven Englander, discussions are underway among Fed members, some of whom favor a 50 basis point cut, while others place emphasis on inflation considerations in their strategy. Ryan Sweet, Chief Economist at Oxford Economics, highlighted that the absence of data obscures decisions, potentially leading to another rate cut should the shutdown extend into December.

Looking ahead, several key insights can be drawn:

• FedWatch indicates a near-certain rate cut of 25 basis points.
• An additional cut in December remains highly probable, reflecting broader economic concerns.
• Powel’s forthcoming comments will provide crucial guidance on future financial policy directions.

In the wake of the Fed’s anticipated decision, major cryptocurrencies like Bitcoin and Ethereum have seen modest declines, with Bitcoin hovering around $113,000 and Ethereum just above the significant $4,000 mark. Other top altcoins such as XRP, Solana, BNB, Dogecoin, TRON, and Cardano also recorded decreases between 1% and 3%. Market participants suggest that both global and cryptocurrency markets have largely preempted the Fed’s rate cut decision, drawing particular attention to Powell’s forthcoming commentary for future market movement indications.