Anticipation Grows for Fed's Sept. 17 Rate Cut Amid Market Volatility
As the Federal Reserve gears up for its rate decision on September 17, traders are bracing for potential short-term fluctuations, but they expect a boost for risk assets like Bitcoin and gold in the long run.
Investors are eagerly awaiting the Federal Reserve’s monetary policy decision on September 17, when a quarter-point rate reduction is anticipated. This move could create short-term market fluctuations but is expected to enhance long-term prospects for high-risk assets. The economic scenario illustrates the Fed’s intricate balancing act.
What You Should Know:
- The Fed is likely to cut rates by 25 basis points on September 17, even as inflation rose to 2.9% in August.
- Markets have anticipated this change, which could lead to brief disappointment and volatility.
- Risk assets like Bitcoin, gold, and stocks remain well-positioned for long-term growth if the Fed continues with a lenient policy.
According to the recent CPI report from the U.S. Bureau of Labor Statistics, consumer prices saw a 0.4% rise in August, causing the annual CPI to rise to 2.9% from 2.7% in July. Both core CPI and Producer prices mirrored this trend, indicating persistent inflation even amidst decreasing growth.
With nonfarm payrolls adding a mere 22,000 jobs in August and unemployment maintaining at 4.3%, the labor market shows signs of weakening. Average hourly earnings increased by 3.7% year-on-year, sustaining wage pressures.
Moreover, MarketWatch reports that the 2-year Treasury yield is at 3.56%, and the 10-year yield is at 4.07%, resulting in a slightly inverted yield curve. Futures suggest a 93% chance of the expected 25 basis point cut. If the Fed opts for a limited decrease, market reactions could reflect a buy the rumor, sell the news scenario, as relief has been priced in already.
In stock markets, the S&P 500 recently closed at 6,584 after a 1.6% rise for the week, signaling bullish sentiment without record levels. The NASDAQ Composite has set five record highs in a row, boosted by gains among major technology stocks. Crypto assets are experiencing a substantial rise as well, with Bitcoin trading around $115,234, a notable increase from previous months.
Gold prices have also surged to $3,643 per ounce, reaching near record highs as investors seek protection against inflation and lower real yields. Historical data suggests that market activity following Fed rate cuts often leads to long-term asset gains despite short-term fluctuations.
