Markets Brace for Likely Fed Rate Cut This Week

With just three days remaining until the Federal Reserve’s next policy decision, market watchers are all but certain of one outcome — a rate cut. According to the CME FedWatch Tool, there’s now a 98.3% probability that the Fed will lower interest rates by 25 basis points (bps).

This high level of certainty is based on futures trading data and reflects expectations that the Fed is responding to signs of a slowing economy and easing inflation pressures. A 25bps cut would mark a notable shift in monetary policy, which had previously been in tightening mode to combat inflation.

What’s Driving the Rate Cut Expectation?

Several economic signals have fueled expectations of a rate cut. Recent U.S. data shows a cooling labor market, weakening consumer spending, and inflation gradually moving closer to the Fed’s 2% target.

Moreover, global macroeconomic uncertainties — including geopolitical tensions and uneven growth — have pressured central banks, including the Fed, to reconsider their stance. The CME’s 98.3% probability figure is based on how traders are pricing federal funds futures, which strongly suggest a pivot to easing.

The Fed’s move is being closely monitored by both traditional and crypto markets. Rate cuts typically inject more liquidity into the system, making borrowing cheaper — a condition that has historically been bullish for assets like stocks and cryptocurrencies.

Market Implications for Crypto Investors

For crypto investors, a rate cut could spark renewed interest and momentum. Lower interest rates often translate to weaker dollar strength and increased risk appetite, which may benefit digital assets. Bitcoin and Ethereum, in particular, could see upward pressure if the Fed confirms the expected cut.

However, the full impact will depend on the Fed’s tone and any forward guidance. If the Fed hints at more cuts to come, markets could rally further. But if the tone is cautious, gains may be limited.