Key Takeaways
- The Fed is expected to lower interest rates by 25 basis points to a range of 4.25% to 4.5%.
- Increased market instability is possible as the event looms.
- The US economy added 227,000 jobs in November.
The Federal Reserve is scheduled to announce its interest rate decision during its meeting on Wednesday. Economists widely predict that the Fed will cut rates for the third time in a row, bringing the federal funds rate down to a target range of 4.25% to 4.5%.
Another 25-basis-point rate cut would result in a total reduction of one full percentage point since September. The federal bank first reduced interest rates by 0.5 percentage points in September and then made another cut of 0.25 percentage points in November.
According to the CME FedWatch Tool, there is now a 95.4% chance of a 25-basis-point rate cut, while the probability of maintaining current rates stands at 4.6%. This reflects a slight adjustment from yesterday, when the likelihood of a rate cut was around 98%.
Nevertheless, compared to last week, expectations for a rate reduction have strengthened, particularly 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, exceeding expectations and showing a rebound from months disrupted by hurricanes and strikes.
Job growth has been robust, particularly in sectors such as health care and tourism. Solid job gains contribute to a positive economic outlook, which can influence the Fed’s decision-making regarding interest rates.
Last week, the BLS reported that November’s CPI increased by 2.7% year-over-year, in line with expectations. Immediately after the report, the odds of a rate cut in December rose to approximately 96%.
Future Rate Cuts Are Less Likely
Inflationary pressures have stabilized, but have yet to return to desired levels. The Fed has been working to bring down inflation from a peak of 9.1% in June 2022, and while there has been progress, the current rate is still above their target of 2%.
Jacob Channel, senior economist at LendingTree, said in a statement to CBS News that the Fed will likely proceed with a 25-basis-point cut at its upcoming meeting, but there may not be further cuts in the immediate future.
The economist also noted potential changes in economic policies under President-elect Donald Trump, which “might cause a resurgence in inflation or otherwise throw the economy off balance.” In this scenario, the Fed may choose to hold off on further rate cuts to assess their effects on the economy.
Crypto Markets Brace for Volatility Ahead of Fed Rate Decision
The crypto markets are bracing for increased volatility as the Federal Reserve’s interest rate decision draws near. Bitcoin (BTC) has fallen by 2% in the last 24 hours, while Ethereum (ETH) has dropped by 4%, according to CoinGecko data.
The overall crypto market capitalization currently stands at $3.8 trillion, reflecting a 4% decline over the past day.
Bitcoin dipped to $104,000 after peaking at $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 slight losses.
The markets may become more turbulent as the key event looms.
Among the top 100 crypto assets, Pudgy Penguins’ PENGU token posted the biggest losses at 55%, likely due to heavy selling pressure following its airdrop to NFT holders, which triggered a steep decline in both the token’s value and the floor price of Pudgy Penguins NFTs.