Today, following the release of employment data, the stock market opened on an upward trend, yet Bitcoin started dropping once more. The pattern of short-term investors viewing any rise in cryptocurrencies as a selling opportunity continues, so this development comes as no surprise. The real question is: how are Federal Reserve members reacting to today’s employment figures?
Fed Announcements
The employment data reflects reaching the highest unemployment rate since October 2021. This statistic is likely capturing the interest of Federal Reserve members, and as the December meeting approaches, their comments will be under scrutiny. Although the employment numbers may slightly increase the probability of rate cuts, the recently announced wage growth indicates a possible rebound in labor demand.
Michael Gapen from Morgan Stanley notes that stronger employment data reduces the risk of rising unemployment. Consequently, the bank no longer anticipates a Fed rate cut in December. Looking forward, the expectation now is that cuts might occur in January, April, and June of next year.
Fed member Hammack expressed concerns about the potential for rate cuts to encourage risk-taking in financial markets. Additionally, he warned that such cuts may prolong high inflation. The financial conditions are currently “quite favorable,” yet stablecoins and private credits merit careful observation.
Hammack also highlighted leverage concerns within hedge funds and life insurance companies. He acknowledged that employment data accentuates the challenges facing monetary policy. Whilst high inflation remains a significant issue for the economy, he participates in Federal Reserve meetings with an open mind and underscores the need for monetary policy to remain somewhat restrictive.
Will Rate Cuts Occur?
Although Hammack holds a position in the Federal Reserve, he does not have voting rights at the meetings. Conversely, Fed member Barr supported a rate cut in the last meeting. Meanwhile, Cook, a voting member, was making statements while the article was being prepared. Bitcoin fell below 90,000 dollars, and the US Commerce Department announced a few minutes prior that it would not release its report on November 26. This delay is causing concern among investors.
Barr emphasized that AI contributes significant gains to GDP, although these do not yet translate into productivity increases. While AI generally exerts a positive impact, short-term disruptions may arise. Barr expressed concern over inflation still being at 3%, stressing the need to support the labor market and bring inflation back down to 2%. He advocated for caution in monetary policy to balance the risks.
Barr’s stance on the December rate cut is negative, complicating matters as Cook was recently under pressure from Trump, and Powell is maintaining a hawkish stance. This leaves those in favor of cuts in the minority. As of writing, Cook stated that the US financial system is resilient and currently poses no risk to financial stability, although significant asset price declines are increasingly likely.
He does not believe private credits currently threaten financial stability, yet vigilance is advisable. Hedge funds’ trading strategies involving treasury bonds pose a potential risk to market liquidity. The use of generative AI in trading raises concern, although it may also offer benefits, necessitating careful monitoring.
By the end of the article, the Bitcoin price had slipped to 89,000 dollars.