Bad news for Bitcoin: chances of an interest rate cut next month plummet

Divisions within the US central bank (Federal Reserve) over a possible interest rate cut in December are causing increasing tension on the financial markets. According to a report by Nick Timiraos of the Wall Street Journal, often referred to as the “Fed whisperer,” policymakers are increasingly disagreeing on interest rate policy.

Disagreement about inflation and the labor market

Discussion has arisen within the Fed about what currently poses the greatest threat to the American economy: persistent inflation or a weakening labor market. According to Timiraos, these divisions have been reinforced by the prolonged government closure, which meant that important economic data, such as inflation and labor market reports, could only be published later.

The central bank unanimously lowered interest rates by 25 basis points in September and October. However, several policymakers are now cautious about a third interest rate cut in December. Some Fed members believe further cuts increase the risk of renewed price pressure.

Fed Chairman Jerome Powell already tempered expectations at the end of October that a cut in December is self-evident. According to the CME FedWatch Tool, the market currently expects a 65 percent chance that interest rates will be cut again by 25 basis points during the meeting of December 10 and 11. The chance that interest rates will remain unchanged is approximately 35 percent. In the past two months, the chance of an interest rate cut was always well above 90 percent.

Effect on Bitcoin and the crypto market

The uncertainty surrounding interest rate policy has direct consequences for Bitcoin (BTC) and other crypto assets. Higher interest rates generally lead to less risk appetite among investors, which puts downward pressure on the crypto market. Lower interest rates, on the other hand, would increase liquidity and improve sentiment.

In addition, investors are looking to December because the Fed is also expected to end its policy of quantitative tightening (QT). Such a decision could eventually lead to a recovery of risk appetite on the financial markets.

Investors are now waiting for new inflation and labor market data to be released before the December meeting. Until then, the direction of both interest rates and therefore also the Bitcoin price remains uncertain.