Cryptos, Stocks Rally on Hope Fed Will Pivot

Central bankers could be forced into a pivot if economic conditions don’t improve

article-image

Federal Reserve Chair Jerome Powell | Source: Federal Reserve (CC license)

share

key takeaways

  • The Fed is willing to rethink its current policy direction if economic conditions continue to deteriorate, minutes show
  • Markets seem confident that a pivot is on the horizon

The Federal Reserve has started to hint that certain economic conditions may warrant a turnaround on its aggressive quantitative tightening, sending markets back in the green, according to Fed minutes released Wednesday. 

After officials opted to raise rates 0.75% for a third straight time at its last meeting in September, the Fed may rethink its strategy if economic metrics continue to clock in below expectations. 

“Participants judged that the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability,” the minutes said.

The September producer price index, released ahead of the minutes, came in higher than expected, sending stocks into a volatile position. The figure came in 0.4% higher last month. 

Tuesday’s New York Fed September Survey of Consumer Expectations found spenders are expecting to pay more in the coming months, especially for rent. The survey shows expectations for 9% to 10% rental inflation remain. Just before the pandemic, in February 2020, expected one-year rent inflation was a relatively normative 5.2 percent.

“Perceptions of housing inflation have yet to weaken, and these are a core component of the CPI calculation,” Nicolas Colas, co-founder of DataTrek Research, told Blockworks. “On the wage inflation front, households still expect to see record levels of income growth over the next year. This tells us that markets are right to be concerned about Fed rate increases continuing into 2023.”

Growth forecasts for the second half of the year and 2023, meanwhile, have been lowered — despite a rebound in gross domestic product growth during the second quarter. 

“Several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook,” the minutes said.

Equities moved up slightly on the news. The S&P 500 gained 0.4% toward the end of Wednesday’s trading session, while the Nasdaq rose 0.5%. Bitcoin and ether rallied 0.5% and 1.5%, respectively. 

Even as traders appear optimistic about a pivot, futures markets are still pricing in an 84% chance of a 75 basis point hike and a 16% chance of a 0.5% rise next month, according to CME data.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Templates.png

Research

ZKPs enable efficient offchain transaction processing and validation, resulting in increased throughput and reduced fees. Solana's ZK Compression leverages ZKPs to minimize onchain storage costs, while Sui's zkLogin streamlines user onboarding by replacing complex key management with familiar OAuth credentials.

article-image

Plus, is Polymarket this cycle’s breakthrough mainstream app?

article-image

The crypto asset manager lowered its planned fee from 0.25% to 0.15%, undercutting its competitors

article-image

Plus, a look at planned ETH ETF fees and how they differ from their BTC counterparts

article-image

North Korea suspected in breach of Indian exchange’s multisig wallet

article-image

Plus, Sanctum’s CLOUD token has officially launched — but not without problems

article-image

It’s not yet clear whether Donald Trump is pumping bitcoin. But an unofficial memecoin is still seeing benefit.