Market Storm Likely After September Fed Interest-Rate Cut, VIX Suggests

Key Insights:

• October VIX futures signal increased market anxiety following the expected Fed rate cut.
• Bitcoin’s behavior mirrors Wall Street sentiment.

Overview

As the Federal Reserve nears its anticipated interest rate cut on September 17, the VIX index—widely regarded as Wall Street’s volatility indicator—highlights potential market turbulence ahead. The VIX measures the expected fluctuating nature of the S&P 500 and currently suggests that market participants expect a spike in volatility.

The difference between the October and September VIX futures has reached historic heights, indicating traders’ expectation of increased volatility conditions post-Fed meeting. According to TradingView, the spread has widened to 2.2%, diverging from normal levels, especially as the September contract expires on the same day as the rate announcement.

Greg Magadini from Amberdata notes that, “Cash is fair compared to September… but September is extremely low compared to October futures.” This signals traders’ anticipation of steady markets leading up to the Fed decision, while bracing for potential turbulence thereafter.

As market watchers anticipate at least a 25 basis point cut in the upcoming Fed meeting, the discussions in the October futures market show a stark contrast, predicting undesirable volatility post-decision. Historically, the VIX has typically risen during bear markets, suggesting that the Fed’s actions could lead to a downward trend in equities, affecting crypto assets like Bitcoin as well.

In summary, as Bitcoin closely follows stock market tendencies, an escalation in stock volatility could provoke corresponding reactions in the cryptocurrency market.