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A recent Wall Street Journal article by Nick Timiraos, renowned for his inside knowledge of Federal Reserve decisions, has dramatically altered market expectations regarding the Fedâs upcoming rate cut. Timiraos suggested that the Fed might opt for a more aggressive 50 basis point cut, rather than the anticipated 25 basis points. This revelation has quickly shifted market sentiment, with the probability of a 50 basis point cut climbing to 45%, up from the high teens just days ago.
So itâs no longer a question if the Fed will cut rates next week, but by how much! Will it be a cautious quarter-point cut or a bold half-point slash? Hereâs the insight report.
Economic Data Drives Reassessment
The Fedâs current interest rate target is between 5.25%-5.50%, which is still very high for the economy. However, the majority of the analysts expect a rate cut in September, but thereâs debate on whether it will be a bit size or a huge chunk, especially since recent job market data was cooler than expected. The sudden change in outlook follows robust economic data that has influenced Fed rate cut expectations.Â
Having said that, the August jobs report showed a strong labor market, and recent inflation metrics, including CPI and PPI reports, indicated persistent inflationary pressures. This data has led analysts to reconsider the Fedâs approach, with some suggesting that a larger rate cut might be on the way.
Market Response and Bitcoinâs Volatility
In the meantime, Timiraosâ insights have spurred notable market movements. The U.S. stock market, initially down, rebounded with gains following the articleâs publication. Bitcoin also experienced a brief uptick, reaching $58,400 before settling around $57,800. Generally, easier monetary policy is viewed as beneficial for risk assets like Bitcoin. However, given Bitcoinâs current bear phase, the implications of a more substantial rate cut remain uncertain. Some analysts argue that a swift rate reduction might signal underlying economic concerns, potentially leading to further price declines for Bitcoin.
As the Fedâs meeting approaches, the market remains divided on whether the central bank will opt for a 25 or 50-basis point cut. What is your take on this this?
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