Bitcoin’s daily drop continues, and the Federal Reserve’s minutes weren’t enough to halt the decline. Surprisingly, the details seem to support the downturn. As expectations for a December rate cut drop significantly, we will examine the Fed minutes for critical insights.
October Rate Decision
In October, nearly all Fed members voted for a 25bp cut, except Miran and Schmid. Known as Trump’s Fed representative, Miran opposed this decision because he advocated for a 50bp cut. In contrast, Schmid argued that there was no need for a rate cut, citing inflation’s upward trends which raised concern.
Schmid is worried about inflation’s progress towards the target and the rise in long-term inflation expectations. His hawkish stance requires us to follow his future comments closely as they provide insight into the Fed’s ultra-hawkish readings.
Jerome H. Powell, the Chair, alongside key members such as John C. Williams and Michael S. Barr, supported the 25bp rate cut. Williams and Waller largely favor quicker easing, and their statements consistently reflect this stance.
Considering all these, the chances of the Fed keeping rates unchanged in December seem high. Recent declines have been spurred by the announcement that the BLS can’t release October’s employment report, suggesting a solidified decision not to cut rates.
End of Quantitative Tightening and Start of Monetary Expansion
Fed Chair Powell proposed halting the reduction of the System Open Market Account (SOMA) portfolio at the meeting. He noted that continued balance sheet reduction could heighten market volatility risks for policy rate control and repo market stability.
Participants concurred that halting the balance sheet reduction soon would be appropriate, redirecting principal payments from agency securities into Treasury securities. Almost all agreed to cease securities asset reduction by December 1, delegating implementation to the New York Fed.
Therefore, technically, the Fed has ended its period of monetary tightening. The issue now is how fast rates will be lowered, with tariff-induced inflation unlikely to incite long-term rate hikes among Fed members.
Future Projections
There are divergent opinions among Fed members about the rate decision in December. The crucial factor is the overall stance which favors holding rates steady. With the October employment report unseen, those advocating for steadiness gain strength.
A number of members deem further reductions in the federal funds target range suitable if economic developments match expectations. Several others believe maintaining the target range is appropriate, acknowledging that policy is not predetermined and will adapt to economic conditions.
Inflation Expectations
The September PCE estimate suggests controlled inflation, with PCE prices increasing 0.5 points over a year and core PCE unchanged. Members cautious about inflation’s upward trend prefer measured action.
Concerns about tariff-induced inflation have diminished among Fed members, which is promising. Despite anticipated upward pressure on inflation through 2026, a return to disinflation thereafter is expected.
Employment Projections
Due to the government shutdown, the Fed couldn’t see a clear employment picture. With September’s report pending, the upcoming report’s influence might shift December’s decision if worse than expected.
Participants link slower job growth to structural factors reducing demand and uncertainty affecting labor supply, noting AI and technology investments impacting labor demand.
Crypto Market Outlook
Bitcoin hits deeper lows at $88,700, while Ethereum and XRP see declines. The Fed has substantial reasons to keep rates steady due to prevailing opposing views. Japan’s recent stimulus moves could entice the Fed towards prompt easing if bond markets are affected.
The critical factor for cryptocurrencies in December is the Fed’s reaction to Japan’s policies, as potential rate hikes by the Bank of Japan loom. Moreover, Nvidia’s earnings report might impact the market, considering Fed members’ concerns about AI-related re-evaluations triggering stock drops.
As Bitcoin continues to dive lower, the Fed’s current stance remains evident.