In the present day, Wednesday, September 17, 2025, the Fed will announce its financial coverage choice on rates of interest.
It appears virtually sure that the American central financial institution will go for a 25 foundation level minimize, a lot in order that the markets have already largely priced on this choice.
In actuality, nonetheless, at the moment there might nonetheless be volatility, as a result of if the speed minimize is priced in, the longer term prospects are fairly one other matter and nonetheless seem unsure.
The Fed’s Fee Minimize
The final charge minimize by the Fed was in December of final yr, once they minimize them by precisely 25 foundation factors.
Word that beforehand, from February 2022 to July 2023, they’d elevated them by as a lot as 525 foundation factors, and ranging from September of final yr, they’ve solely minimize them by 100 factors. Then they halted the cuts.
The issue is that the extent of inflation continues to be too excessive, because the annual core inflation between June and July of this yr rose from 2.8% to three.1%.
The Fed’s inflation goal is 2%, so the present core of three.1% is sort of distant. Moreover, the tariffs launched by Trump are more likely to have pushed inflation up in current months, they usually might proceed to push it increased for some time longer.
Subsequently, in principle, the Fed shouldn’t minimize charges this time both, however the American central financial institution additionally has a second goal, along with the two% inflation aim, which is full employment.
The US labor market has contracted in current months, with the unemployment charge rising from 4.1% in June to 4.3% in August.
It’s exactly as a result of difficulties within the US labor market that the Fed will likely be compelled to chop charges, though this worsens the scenario from an inflation standpoint.
The results on the crypto market
The crypto markets, identical to conventional ones, have already broadly priced in a 25 foundation level minimize at the moment.
What they have no idea but is whether or not the Fed will proceed to chop within the coming months.
At present, the markets anticipate a 70% likelihood that by the top of the yr charges will likely be minimize by a complete of 75 foundation factors, and it’s on this share that they’ll probably base their choices at the moment.
In the present day the Fed is not going to solely announce its choice on charges, however will even launch a press assertion with some forecasts for the longer term. Moreover, President Powell will maintain his ordinary press convention afterwards.
If primarily based on the phrases of the Fed and Powell, the markets have been to extend the chances of a complete of 75 foundation factors of cuts by the top of the yr, and even begin to critically contemplate cuts of 100 factors, they need to react properly. If as a substitute these chances have been to lower, they need to react poorly.
The Position of the Greenback
To raised perceive these dynamics, it’s essential to additionally focus on the Greenback Index.
In truth, when the Fed’s rates of interest are excessive, the curiosity paid on US authorities bonds can also be excessive. This retains the demand for Treasuries excessive, which, nonetheless, have to be bought in {dollars}. Subsequently, when the demand for buying Treasuries rises, the demand for {dollars} additionally rises from international consumers, and consequently, the Greenback Index additionally rises.
Conversely, when rates of interest fall, the promoting strain on Treasuries will increase, and consequently additionally that on {dollars}, by international traders.
It’s subsequently not a coincidence that the Greenback Index has lately dropped from about 97.7 factors to 96.8, exactly as a result of the markets have already priced in a charge minimize of 25 foundation factors.
In the event that they have been to cost in a rise within the chance of additional cuts from now till the top of the yr, the Greenback Index might fall additional.
Word that the Greenback Index continues to be inside an ascending channel that began in 2007, however at the moment has its decrease line round 96 factors. Subsequently, there may be the chance that within the coming days or even weeks, it might break a development that has lasted for nearly 18 years, and this might have important penalties on the markets.
The Position of Bitcoin
The purpose is that the worth development of Bitcoin tends to be inversely correlated with the Greenback Index within the medium time period.
Which means that if the markets begin pricing in an elevated likelihood of additional Fed charge cuts, the Greenback Index might fall, and Bitcoin might rise.
Clearly, nonetheless, if the market goes in the wrong way, Bitcoin might decline. At current, nobody can actually know through which path issues will go from this attitude.