From Hawkish to Dovish: Federal Reserve Minutes Point to September Interest Rate Cut

TLDR:

• Fed officials indicated a likely interest rate cut in September
• Recent economic data supports the case for rate cuts
• The BLS revised job creation figures down by 819,000 for March 2023-March 2024
• Bitcoin futures open interest increased by $1.26 billion after the Fed minutes release
• Traders are split on whether Bitcoin’s price will rise or fall

The Federal Reserve has strongly hinted at cutting interest rates in September for the first time since March 2020, according to minutes from the July Federal Open Market Committee (FOMC) meeting.

This news comes as Bitcoin futures traders added over $1 billion in open interest following the release of the Fed’s minutes.

The “vast majority” of Fed officials stated it would “likely” be appropriate to cut interest rates in September, provided upcoming economic data continues as expected. This outlook has led many economists and investors to view a September rate cut as highly probable.

Stephen Brown, deputy chief North America economist at Capital Economics, said the minutes “confirm” a September rate cut is coming. Jamie Cox, managing partner at Harris Financial Group, was even more certain, stating the minutes “removed all doubt about a September rate cut.”

The case for rate cuts has been bolstered by recent economic data.

The Bureau of Labor Statistics (BLS) revealed on August 21 that the U.S. economy created 819,000 fewer jobs than previously reported between March 2023 and March 2024. This significant downward revision indicates the labor market has been weaker than initially estimated.

Fed officials expressed confidence that inflation is moving “sustainably” toward their 2% target, reducing the need to keep rates elevated. They also noted that factors contributing to recent disinflation would likely continue to put downward pressure on inflation in the coming months.

While a September rate cut seems likely, the size of the cut remains uncertain. Most experts expect a cautious 25 basis point reduction, though some see the possibility of a larger 50 basis point cut if economic data continues to weaken.

In response to the Fed’s dovish minutes, Bitcoin futures traders added $1.26 billion to open interest, bringing the total to $31.92 billion. This increase suggests greater confidence among traders in predicting Bitcoin’s price direction, although sentiment is split almost evenly between those expecting price increases and decreases.

Bitcoin’s price has been trading around $60,623 since August 9, showing a 2.26% increase over the past 24 hours. Some analysts believe the cryptocurrency is poised for a significant move, with Markus Thielen, head of research at 10x Research, stating that “Bitcoin looks like it’s ready to break higher.”

As the financial world awaits the Fed’s September meeting, all eyes will be on upcoming economic data and Fed Chair Jerome Powell’s speech at Jackson Hole on Friday.

These events are likely to provide further clarity on the Fed’s intentions and could have a substantial impact on both traditional and cryptocurrency markets.