Fed Monetary Policy
Traders in traditional markets are again betting that the Fed may soon move to a looser monetary policy.
But Friday’s strong US jobs report from the Department of Labor may give policymakers a reason not to back down. Bitcoin (BTC), which is often traded as a risky asset like stocks, could remain under pressure if that were the case.
Futures traders on the Chicago Mercantile Exchange now expect the federal funds rate to peak at 4.5% next year. And just a week ago, the rate was expected to rise to 4.7%.
The change suggests that more traders are expecting a more dovish approach from the Fed, which recently raised interest rates to their highest level since 2007.
At the same time, he continues to repeat that he will not cut rates next year. With inflation still high, the campaign is far from over, officials insist.
San Francisco Federal Reserve Bank President Mary Daly said on Tuesday that there is “a lot” of room for policymakers to raise rates and that she is not worried about the markets right now.
The key question is whether aggressive Fed rate hikes could freeze credit and markets, or pose risks to the stability of the traditional financial system.
“We always have a lender of last resort obligations and if there is a market disruption, we will be ready to use that, but that is not what I see now,” Mary Daly said.
This week, ADP’s National Jobs Report – the private payroll fix – and the job vacancies and labor turnover report, known as PUSHES, showed that the labor market is cooling – a positive sign that the Fed’s monetary policy changes are starting to take effect.
But the published figures still point to signs of a very tight labor market.
The employment report scheduled for Friday by the Department of Labor’s Bureau of Labor Statistics is likely to show a similar weakening in the labor market, various polls show.
According to FactSet, economists expect a 250,000 job increase in September, up from the 315,000 reported last month.
The Atlanta Federal Reserve’s GDPNow forecast model this week shows that gross domestic product likely increased by 2.7% in the third quarter, compared with a 2.3% forecast just a couple of days ago.
This suggests that the economy is in good shape to withstand further pain caused by the Fed.
Until traders see a solid report on Friday coupled with strong wage growth, Bitcoin should remain stable, according to market analysts.
“Traders won’t be surprised if we see a miss to the downside,” said Edward Moya, senior market analyst at Oanda.
“There was a steady stream of hiring freeze or layoff announcements in corporate America, and growth prospects in the US deteriorated in September, which should be reflected in several sectors sensitive to higher interest rates.”
“Bitcoin should maintain a healthy rate but should still remain in an appropriate trading range around $20,000,” said Edward Moya, senior market analyst at Oanda.