[Bitop Review] Powell Douses Market Optimism: Fed Pauses Balance Sheet Reduction but Hints December Rate Cut Not Guaranteed, US Stocks Volat...

The Federal Reserve (Fed) implemented a widely anticipated 25 basis point interest rate cut and announced the cessation of its balance sheet reduction program. However, Chair Powell's remarks suggesting that a December rate cut is "far from a foregone conclusion" tempered market optimism. This statement led to a rise in US Treasury yields, mixed performance in US stocks, with tech stocks, buoyed by Nvidia, reaching new all-time highs. Concurrently, Bitcoin and Ethereum experienced downward pressure, reflecting a prevailing cautious investor sentiment.

Fed Slows Pace of Rate Cuts: Halts Balance Sheet Reduction, Remains Cautious in Tone

The Federal Reserve announced a 25 basis point (0.25%) rate cut during its interest rate decision meeting, marking the second reduction in rates for the year. The Fed also declared its intention to terminate quantitative tightening, effectively ending the asset contraction cycle that commenced in 2022, starting in December.

However, Chair Powell immediately tempered market expectations at the outset of the press conference, stating, "A further reduction in the policy rate at the December meeting is not a forgone conclusion—far from it."

These comments disrupted the market's prevailing sentiment over the past month, which had anticipated a pivot towards sustained rate cuts. The statement also underscores the Fed's continued cautious approach to assessing economic conditions and inflation trends. Data from interest rate swap markets indicates a decline in the probability of another rate cut in December, dropping from nearly 100% to approximately 60%.

Internal Fed Divisions Widen: From Opposing Rate Cuts to Cutting by 50 Basis Points?

The rate cut decision was approved by a 10-2 vote, with one dissenting member advocating for "no rate cut should be made" and another supporting a "50 basis point cut." This divergence represents the most significant policy division observed in five years, signaling to the market differing internal assessments of inflation and labor market risks.

The media outlet The Kobeissi Letter highlighted that Fed decisions have historically been nearly unanimous, and this departure from tradition aligns with Chair Powell's statements regarding "December uncertainty."

US Stock Market Volatile, Nvidia Props Up Tech Stocks to Become First Company with $5 Trillion Market Cap

The market reacted with volatility to Powell's remarks, leading to significant fluctuations in US stock performance. Concurrently, Nvidia (NVIDIA) shares experienced a surge of 3%, propelling its market capitalization beyond $5 trillion and marking a historic first for a global corporation. TSMC's ADR also saw an increase of 1.2% in tandem with these movements.

The US Treasury market witnessed sharp swings, with the 10-year yield climbing to 4.056%, reflecting the largest single-day increase recorded since July.

Market attention is now shifting towards the anticipated meeting between Trump and Xi today, with expectations that any progress in US-China negotiations could become the next catalyst for market volatility.

Crypto Market Faces Pressure in Tandem: BTC, ETH Stabilize but Confidence Lacking

Following the Fed meeting, Bitcoin (BTC) and Ethereum (ETH) experienced short-term declines of 2.3% and 4.2%, respectively, before stabilizing slightly.

Bitcoin briefly fell below $110,000 to $109,200 subsequent to the announcement. Although it has since rebounded, it remains at risk of a secondary dip, trading at approximately $110,945 as of the time of reporting.

Ethereum dropped below $3,900 to $3,840 yesterday. It later closed higher at $3,902 and is currently trading at around $3,945 at the time of writing.