BTC price fluctuates ahead of expected Fed rate cut

Just hours away from the Federal Reserve’s expected rate reduction from its current 5.25%-5.50% range, the question remains whether the cut will amount to 25 basis points or 50bps.

The Federal Open Market Committee (FOMC) is set to release a statement at 2 pm ET before Fed Chair Jerome Powell’s press conference at 2:30 pm ET.  

One of the final data points to look at before the central bank’s decision was US retail sales for August. 

The Census Bureau’s report Tuesday morning showed these sales slightly rose last month — amounting to a month-over-month increase of 0.1%. The increase was a bit unexpected, as economists polled by Reuters had estimated a 0.2% decline.

21Shares research analyst Leena ElDeeb noted the retail sales “beating expectations” were well-received by the market, “alleviating recession fears for now.”

Bitcoin’s price rose toward $61,000 by Tuesday afternoon — a level nearly 5% higher than 24 hours prior. BTC dropped closer to the $59,000 level early Wednesday before again increasing to about $59,800 at 9:30 am ET.

Off The Chain Capital CEO Brian Dixon told Blockworks the better-than-expected retail sales numbers could pressure the Fed to cut rates by only 25bps, “as the economy is still somewhat strong but clearly showing signs of slowing.” 

Read more: What to watch for heading into the next Fed rate decision

The probability of the Fed cutting rates by 50bps stood at 59% at 9:30 am ET Wednesday, according to CME Group’s FedWatch tool.

This chance of a 50bps cut has fluctuated in recent days after jumping markedly higher late last week. Before that, the markets viewed a 25bps cut as more likely.

A 50bps cut could spark investor fears of a recession and potentially increase volatility, some industry analysts and executives have noted.

“I think the overall data picture shows that the Fed is probably thinking that it might be better to gradually taper down rates rather than initiate cuts in a big way,” Dixon added.

Such a gradual drop would go against the wishes of three Democratic senators who urged the Fed (in a Monday letter to Powell) to cut rates by 0.75% at the September meeting. 

Front-loading rate cuts could help the US economy “avoid sliding towards a potential crisis,” Sens. Elizabeth Warren, Sheldon Whitehouse and John Hickenlooper wrote.

A number of analysts have said the market is pricing in 100bps in rate reductions by the end of the year.

“Obviously, even as inflation has eased, there’s certainly concern that it could return if overall monetary loosening takes place in a fashion that is too big and too fast,” Dixon said.

A modified version of this article first appeared in yesterday’s On the Margin newsletter. Subscribe here so you don’t miss tomorrow’s edition.

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.