Federal Reserve Prepares Third consecutive Rate Cut Amid Strong Employment Data

TLDR

• Fed expected to cut interest rates by 25 basis points to 4.25-4.5% range, marking third consecutive cut
• 95.4% probability of rate cut according to CME FedWatch Tool, supported by recent inflation and job data
• US economy added 227,000 jobs in November, showing strong employment growth
• Crypto markets showing volatility with Bitcoin down 2% and Ethereum down 4% ahead of Fed decision
• Pudgy Penguins token experienced 55% loss, largest among top 100 crypto assets

The Federal Reserve is set to announce its final interest rate decision of 2024 on Wednesday, with widespread expectations pointing to a third consecutive rate cut. Based on current market indicators, the Fed is likely to lower rates by 25 basis points, bringing the federal funds rate to a target range of 4.25% to 4.5%.

Market sentiment strongly favors a rate reduction, with the CME FedWatch Tool showing a 95.4% probability of a 25-basis-point cut. This represents a slight decrease from yesterday’s 98% probability but remains overwhelmingly in favor of a rate reduction.

The anticipated rate cut would mark the third such move since September, resulting in a total decrease of one percentage point over the past three months. The Federal Reserve initiated this cycle with a 0.5 percentage point reduction in September, followed by a 0.25 percentage point cut in November.

Recent economic data has strengthened the case for another rate reduction. The Bureau of Labor Statistics reported that the U.S. economy added 227,000 jobs in November, surpassing expectations and demonstrating resilience in the labor market despite earlier disruptions from hurricanes and strikes.

Employment growth has been particularly strong in the healthcare and tourism sectors, contributing to an overall positive economic outlook. This robust job market performance has played a crucial role in shaping the Fed’s monetary policy considerations.

November’s Consumer Price Index (CPI) data aligned with market expectations, showing a 2.7% increase year-over-year. This inflation reading prompted an immediate market reaction, pushing the likelihood of a December rate cut to approximately 96% following the report’s release.

The Fed has been actively working to control inflation since it peaked at 9.1% in June 2022. While progress has been made in reducing inflationary pressures, the current rate remains above the Federal Reserve’s target of 2%.

Looking beyond December, economists are less certain about future rate cuts. Jacob Channel, senior economist at LendingTree, indicated to CBS News that while a 25-basis-point reduction appears likely for the upcoming meeting, additional cuts may not follow in the immediate future.

The cryptocurrency market has shown increased volatility ahead of the Fed’s decision. Bitcoin has experienced a 2% decline over the past 24 hours, while Ethereum has dropped 4%, according to data from CoinGecko.

The total cryptocurrency market capitalization currently stands at $3.8 trillion, reflecting a 4% decrease over the last day. Bitcoin’s price movement has been particularly noteworthy, falling to $104,000 after reaching a peak of $107,000 on Tuesday.

The broader altcoin market has followed Bitcoin’s downward trend, with major cryptocurrencies including Ripple, Solana, Doge, and Binance Coin all recording losses. Market analysts anticipate potential increases in volatility as the Fed’s announcement approaches.

Among the top 100 cryptocurrency assets, the PENGU token, associated with the Pudgy Penguins project, recorded the largest decline at 55%. This sharp decrease appears to be connected to substantial selling pressure following an airdrop to NFT holders, affecting both the token’s value and the floor price of Pudgy Penguins NFTs.

The anticipated rate cut would continue the Fed’s recent pattern of monetary policy adjustments, which began with larger reductions and has now moderated to smaller, more measured changes. This approach reflects the central bank’s careful balance between managing inflation and maintaining economic stability.

Market participants are closely monitoring potential shifts in economic policies under the incoming administration, which could influence future Fed decisions. These considerations may impact the timing and scale of any additional rate adjustments in the coming months.

The Federal Reserve’s decision is scheduled for release later today, with markets across all sectors preparing for potential price movements in response to the announcement.