Reserve

FOMC

Future

Bitcoin

<div class="textg" style="text-align: justify; font-weight: lighter; line-height: 1.3em; font-size: 15px; border-radius: 3px; color: #80909a; padding: 10px; background-color: #F4F6F9; margin-bottom: 15px;">
 Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our&nbsp;<a href="https://tokenist.com/terms-of-service/" style="text-decoration:underline;color:#3c7b7b" target="_blank" rel="noreferrer noopener" class="deco-link">website policy</a>&nbsp;prior to making financial decisions.
</div> 
<p class="has-drop-cap">The Fed’s decision to maintain the interest rate within the 5.25 – 5.50% range at the last FOMC meeting appears to have been justified. Friday’s Bureau of Economic Analysis report shows that the Personal Consumption Expenditures (PCE) price index came in under expectations.&nbsp;</p> 
<p>On a monthly basis (for August), the PCE price index increased by 0.4% vs. an estimated 0.5%. Likewise, the monthly core PCE price index increased by 0.1% vs. an estimated 0.2%. For both versions annually, PCE matched expectations at 3.5% and 3.9% (core).</p> 
<p>This marks the lowest PCE rise since September 2021. Of the different inflation indicators, core PCE is the preferred gauge for the Federal Reserve as it excludes more volatile items like food and energy. As such, the core PCE price index is more useful to determine monetary policy.&nbsp;</p> 
<p>Equally, this inflation gauge is closely watched for the same reason, often impacting market moves.</p> 
<h3 id="market-s-reaction-to-soft-inflation-report">Market’s Reaction to Soft Inflation Report</h3> 
<p>Tracking the 30 largest American blue chip stocks, the Dow Jones Industrial Average (DJI) opened 0.64% higher on Friday, rising by 216.27 points. Other benchmarks were equally receptive to positive PCE news. The S&amp;P 500 (SPX) rose by 0.66%, while the tech-focused Nasdaq Composite (IXIC) jumped by 1.03%.&nbsp;</p> 
<p>Interestingly, <a href="https://tokenist.com/investing/how-to-invest-in-bitcoin/" rel="dofollow" class="deco-link">Bitcoin (BTC)</a> dropped sharply in the afternoon, going to $26.7k, only to stabilize at $26.9k again. This is not surprising, given Bitcoin’s perception as a <a href="https://tokenist.com/investing/how-to-hedge-against-inflation/" rel="dofollow" class="deco-link">hedge against inflation</a>. If the inflation trends downwards, demand for bitcoins may be less pressing.&nbsp;</p> 
<p>On the other hand, if the Federal Reserve is now less likely to raise interest rates and more likely to accelerate rate cuts, this would be favorable for crypto investors. After all, the historic inflow of cheap capital during 2020/21 allowed Bitcoin to reach an all-time high price of $68,789 in November 2021.</p> 
<p>Regarding the dollar itself, softer inflation figures slightly raised the US Dollar Index (DXY), which is often inversely related to Bitcoin’s price moves. This played out again on Friday.&nbsp;</p> 
<div class="wp-block-image"> 
 <figure class="aligncenter size-large">
  <img decoding="async" width="1024" height="766" src="https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739-1024x766.png" alt="" class="wp-image-174104" srcset="https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739-1024x766.png 1024w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739-300x224.png 300w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739-768x574.png 768w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739-650x486.png 650w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739-205x152.png 205w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739-289x216.png 289w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-29-172739.png 1165w" sizes="(max-width: 1024px) 100vw, 1024px">
  <figcaption class="wp-element-caption">
   <em>The Dollar Strength Index (DXY) vs Bitcoin (BTC). Image courtesy of TradingView</em>
  </figcaption>
 </figure>
</div> 
<p>Typically, the potential of rate cuts leads to DXY decline as the dollar becomes cheap again. Nonetheless, this plays out differently if a <a href="https://tokenist.com/value-stocks-look-more-attractive-as-a-hard-landing-looms/" rel="dofollow" class="deco-link">hard landing</a> is on the horizon, as it appears to be. In that scenario, investors seek safe-haven bonds in anticipation of a stock market decline., which would raise DXY further.</p> 
<div class="cta-referral"> 
 <img src="https://tokenist.com/wp-content/themes/thetokenist/assets/img/del/cta-referral-1.png" alt="" class="cta-referral__img" loading="lazy" decoding="async"> 
 <div class="cta-referral__text"> 
  <p>Join our&nbsp;<a href="https://t.me/thetokenist" target="_blank" rel="noreferrer noopener nofollow">Telegram group</a>&nbsp;and never miss a breaking digital asset story.</p> 
 </div> 
</div> 
<h3 id="market-expectations-for-future-rate-cuts">Market Expectations for Future Rate Cuts</h3> 
<p>With two more FOMC meetings by the end of the year, investors are more confident in the&nbsp; Fed maintaining the rate. In contrast to the prior 40% fed fund futures bet, the probability for another hike lowered to 34%.</p> 
<p>By present market expectations, the first rate cut (ease) is on the table by August 2024.&nbsp;</p> 
<div class="wp-block-image"> 
 <figure class="aligncenter size-full">
  <img decoding="async" width="614" height="467" src="https://tokenist.com/wp-content/uploads/2023/09/Untitled.png" alt="" class="wp-image-174091" srcset="https://tokenist.com/wp-content/uploads/2023/09/Untitled.png 614w, https://tokenist.com/wp-content/uploads/2023/09/Untitled-300x228.png 300w" sizes="(max-width: 614px) 100vw, 614px">
  <figcaption class="wp-element-caption">
   <em>Trading on Chicago Mercantile Exchange (CME), fed fund futures bet or hedge against short-term interest rate fluctuations, directly mirroring Fed’s policy. Image courtesy of CME Group.</em>
  </figcaption>
 </figure>
</div> 
<p>However, as excess savings depleted to the pre-lockdown level of March 2020, this is likely to change. Per the <a aria-label=" (opens in a new tab)" href="https://www.federalreserve.gov/econres/notes/feds-notes/accumulated-savings-during-the-pandemic-an-international-comparison-with-historical-perspective-20230623.html" target="_blank" rel="noreferrer noopener nofollow" class="deco-link">Federal Reserve report</a> on household finances, only 20% of the top wealthiest have more cash, at 8% above. By June, households held an aggregate excess savings of just under $190 billion.&nbsp;&nbsp;</p> 
<p>At the same time, US credit card debt hit a record $1 trillion in August, with household debt rising to $17.06 trillion. This debt will have to be serviced under a higher interest rate regime for now. By the same token, the US net interest payments, as a percentage of government receipts, increased to 15%.</p> 
<p>In other words, the government’s tax revenue is increasingly drained into merely servicing its debt, which is monetized through bond issuance. This represents immense pressure to cut rates as it becomes difficult for the USG to finance spending. </p> 
<p>As the 10-year Treasury yield surges to the highest level since the Great Recession, at 4.6%, long-term federal deficits are poised for new records. Given how this is likely to create a <a aria-label="debt crisis (opens in a new tab)" href="https://manhattan.institute/article/how-higher-interest-rates-could-push-washington-toward-a-federal-debt-crisis" target="_blank" rel="noreferrer noopener nofollow" class="deco-link">debt crisis</a>, interest rate cuts should be coming sooner rather than later.</p> 
<div class="cta-sub js__cta-sub"> 
 <div class="cta-sub__start" data-step="1"> 
  <div class="cta-sub__title">
   <strong>Finance is changing.</strong>
  </div> 
  <div class="cta-sub__subtitle">
   Learn how, with Five Minute Finance.
  </div> 
  <div class="cta-sub__excerpt">
   A weekly newsletter that covers the big trends in FinTech and Decentralized Finance.
  </div> <button type="button" class="btn">Try it out (for free)</button> 
 </div> 
 <div class="cta-sub__form" data-step="2" style="display: none;"> 
  <script type="text/javascript" src="https://app.getresponse.com/view_webform_v2.js?u=QcLhh&amp;webforms_id=hpcwd"></script> 
 </div> 
 <div class="cta-sub__result" data-step="3" style="display: none;"> 
  <div class="cta-sub__title">
   Awesome
  </div> 
  <div class="cta-sub__caption">
   You’ve subscribed.
  </div> 
  <div class="cta-sub__greeting">
   You’re well on your way to being in the know.
  </div> 
 </div> 
</div> 
<p><strong><em>Do you think this is a momentary reprieve for the stock market? Let us know in the comments below.</em></strong></p> 
<p>The post <a rel="nofollow" href="https://tokenist.com/the-fed-likely-to-hold-rates-steady-as-august-pce-shows-inflation-cooling/">The Fed Likely to Hold Rates Steady as August PCE Shows Inflation Cooling</a> appeared first on <a rel="nofollow" href="https://tokenist.com">Tokenist</a>.</p>

The Fed Likely to Hold Rates Steady as August PCE Shows Inflation Cooling

Table of Contents

Tokenist

Other articles published on Sep 29, 2023

Solana's 4.72% Surge to $20.05: Key Insights for September 29, 2023

US Inflation Eases to 3.9%, Spurring Crypto Market Rally

Four More Arrests Made in JPEX Crypto Exchange Probe, Total Detentions Now at 18

Ripple’s Alderoty Criticizes SEC’s Gensler for Evasive Answers During Congressional Hearing

Valkyrie focuses on ETH futures amid SEC’s BTC ETF delays

Meta’s Zuckerberg reveals new photorealistic avatars for metaverse

Join our free newsletter for daily crypto updates!