The price of Bitcoin rose Friday, hitting its highest mark since the start of September as traders grew more confident that the Federal Reserve’s upcoming meeting would yield a jumbo-sized rate cut.
With Bitcoin’s price nearing $60,000—reaching as high as $59,735 per CoinGecko, up 2.5% on the day—the increase represented a reversal of September losses seen as government data stoked worries of a weakening U.S. economy. For example, Bitcoin fell as low as $53,300 a week ago after a weaker-than-expected jobs report for August.
The Federal Reserve is widely expected to lower its benchmark rate last week, loosening monetary conditions for the first time since 2020. Traders had anticipated an initial cut of 25 basis points after Fed officials signaled a measured approach to lowering borrowing costs.
Traders now view the Fed’s decision next week as a relative toss-up. The possibility of a 50-basis-point rate cut strengthened to Friday 43%, rising from 28% a day ago, per CME Group.
The change in sentiment appears linked to Wall Street Journal and Financial Times articles that suggested Fed officials are on the fence. As inflation has slowed toward the U.S. central bank’s stated 2% goal, the Fed’s focus has shifted from consumer prices to the labor market’s health.
A 50-basis-point rate cut could move the Fed’s benchmark rate faster toward neutral territory, where it doesn’t restrict the economy too much at a time when inflation is clearly slowing. At the same time, analysts believed that beginning a series of rate cuts with a larger reduction could “spook the markets,” suggesting the Fed is more worried about a recession.
"Easier monetary policy and lower real interest rates tend to be negative for the dollar while benefiting its competitors like gold and Bitcoin," Grayscale's Head of Research Zach Pandl told Decrypt. "However, [...] if the Fed cuts by 50 basis points, markets might interpret this as a signal that the Fed is concerned about the health of the economy, which could paradoxically be negative for risky assets, including Bitcoin."
The macro analyst Jim Bianco said on Twitter (aka X) that "maximum uncertainty" toward the Fed'd next move was reflected in gold prices, which hit a record price Friday alongside shifts in Fed futures markets.
Last week, Federal Reserve Board Governor Christopher Waller said the size and pace of rate cuts would depend on incoming economic data. And following an inflation readout Wednesday, traders rallied around an 85% chance that the Fed starts off with a smaller cut.
An uptick in core inflation, which strips out food and energy prices, reinforced bets on a smaller rate cut. That’s because there’s a chance that inflation could pick up again if the Fed cuts rates too early, supporting the labor market without bringing inflation fully under control.
Still, the Fed raised rates rapidly to cool a decades-high bout of inflation that peaked in 2022. Speaking to the Wall Street Journal, a former vice chair at the Fed, Donald Kohn, made the case that the U.S. central bank could lower rates quickly in the name of risk management.
At the conclusion of the Fed’s meeting next week, officials will release a set of quarterly economic projections. And a so-called dot plot released by the Fed will indicate where each official on its policymaking committee thinks interest rates should bear by year’s end.
While the market is expecting the Fed to lower interest rates by 100 basis points based on its previously released dot plot, it only has three meetings left in the year. That means Fed officials will likely agree on a 50-basis-point cut at some time in the coming months.
The timing of that 50-basis-point rate cut could carry a subtle message about where the Fed thinks the economy is heading. As next week’s meeting approaches, it appears traders are increasingly betting the Fed would like to get that question out of the way.
Edited by Andrew Hayward