The upcoming policy meeting of the Federal Reserve on September 17 is generating significant anticipation in the financial markets, particularly among cryptocurrency traders, who are bracing for potential volatility. Analysts are currently split on what the outcome may be, with market expectations heavily favoring a rate cut, yet the magnitude of that cut remains a point of debate.
Most analysts predict that the Federal Reserve will opt for a 25 basis point reduction, a move that Charlie Bilello asserts is widely anticipated. Governing this sentiment, bond market observers have indicated that yields are reflecting expectations of three similar cuts by the end of the year. The 10-Year Note Yield recently dipped below the 4.00% threshold for the first time since early April, further reinforcing this outlook.
However, the certainty surrounding this anticipated cut presents a potential risk. Some analysts caution that such clarity can lead to a “sell-the-news” reaction in the markets. One group noted a strong probability—99%—that a rate cut announcement will occur, suggesting that the market might see optimistic trading immediately following the news only to experience a downturn as traders capitalize on profits thereafter.
The history of Bitcoin’s performance during past rate cuts adds another dimension to this situation. Traders are reminded of the last cut in December 2024, when Bitcoin’s price plummeted by 30% shortly after an initial surge. Currently, Bitcoin is trading just above the $115,000 mark, which raises concerns among investors that a temporary rally could abruptly reverse, leading to significant losses. Analysts have mapped out two bearish scenarios: one where Bitcoin drops to around $104,000 before bouncing back, and another where it could sink to $92,000—a level that would fill a gap in the CME futures market—before eventually recovering.
Despite the forecast favoring a 25 basis point cut, there are murmurs of the possibility of a larger 50 basis point cut. Standard Chartered has projected such a move due to recently disappointing job market data, though market pricing gives this outcome a slim chance—about 9%. Should this larger cut occur, it could inject approximately $2.5 trillion in liquidity into the market, which analysts believe may drive altcoin prices higher.
Conversely, the prospect of no rate changes at all looms in the background, though no analysts are actively predicting this outcome. Should the Fed decide against a cut, it could lead to immediate sell-offs in various risk assets, particularly affecting Bitcoin.
Amid these varying potential outcomes, the tone of Fed Chair Jerome Powell’s statements following the announcement will significantly influence market sentiment. Traders are keenly awaiting Powell’s commentary for hints regarding future monetary policy directions, with considerations of dovish or hawkish language playing a pivotal role in shaping market reactions.
As expectations around easing monetary policy have fueled a rally in crypto markets for months, the upcoming September 17 meeting will be critical in determining whether the market embarks on a new bullish trend or faces a painful correction dependent on the Fed’s actions and guidance.
