Fed’s September Surprise: Will They Slash Rates by 0.5%?
The Fed's next move could send shockwaves—or just more paperwork.
Markets are buzzing as September approaches. All eyes are on whether the Federal Reserve will pull the trigger on a 0.5% rate cut. After years of hiking, even whispers of relief have traders reaching for their spreadsheets.
Why 0.5% matters
Not your typical quarter-point baby step. A half-percent cut would scream urgency—like the Fed finally admitting the economy's running on fumes. Or just another case of 'too little, too late' for Main Street while Wall Street pops champagne.
The crypto angle
Digital assets love loose monetary policy. Bitcoin's already pricing in the possibility, while DeFi yields prepare for their next gravity-defying act. Because nothing says 'healthy financial system' like chasing 20% APYs on algorithmic stablecoins.
Bottom line: The Fed's stuck between recession fears and inflation ghosts. Whatever they do, someone's going to claim it was the wrong move—probably with a 100-tweet thread.
U.S. Treasury Secretary Scott Bessent claims interest rates are hanging out 150-175 basis points (bps) higher than they ought to be. Markets, though, are giving a big thumbs down to a 50 bps MOVE for now. But that could change if Fed members drop some hints or the jobs data takes a nosedive.
The broader bet is for the Fed to slice rates next month by 25 bps, with Bessent's remarks about the Fed really cranking up the dovish speculation.
While the dollar kept sliding, those bets are fueling a crypto rally, with Bitcoin surging to a new all-time high on Thursday, breaching $124,000 for the first time ever briefly. Ether, too, rallied to near record highs and levels not seen since 2021.
Those moves lined up with the broad rally in risk assets that saw Wall Street benchmarks closing out at record highs for the second consecutive session.
What's Driving Fed Rate Cut Bets?
US businesses have taken tariffs in their profit margins stride, giving the Fed some wiggle room to tackle the not-so-great jobs scene with interest rate cuts kicking off in September, while inflation is playing nice and staying close to predictions.
In July, price pressures met expectations, with the headline CPI increasing by 0.2% month-on-month and 2.7% year-on-year, while Core inflation rose by 0.3% MoM and 3.1% YoY. Energy prices had a little decline of 1.1% MoM, however food prices were stable last month.
Core goods, excluding autos, ticked up 0.2% MoM after a lively 0.55% MoM leap in June, hinting that, for the moment, companies are swallowing most of Trump's tariff bites.
Tariffs will cause prices to go up, but take heart that type of inflation WOULD just be temporary. When inflation touched 9% in 2021–22, things got out of hand. Now, we're in a completely different situation. During that time, the oil price was all over the map, housing prices and rents were racing upward, and the job market was hot, resulting in record turnover and skyrocketing wages.
The post-COVID price increase was amplified by those blips. Now we're in the midst of a disinflationary period, and cooling rents are preparing to defend against those annoying tariffs in the next quarters.
Against this backdrop, BRN bets on the Fed easing policy in September, followed by two more 25 bps cuts in October and December. That is largely driven by the shaky jobs data and significant drop in GDP growth estimates from 2.5% to 1.5%. Those are clear signs for a rally in risk assets, which is currently playing out.
Just last month, two members of the FOMC voted in favor of a 25 bps reduction in interest rates, having publicly acknowledged their agreement with the President that lower borrowing costs were necessary.
The remaining members of the committee were hesitant, with Chair Powell once again evoking tensions with the President by suggesting that they could be perceived as "looking through" inflation from tariffs.
On the jobs data, the new head honcho at the Bureau of Labor Statistics, EJ Antoni, tossed around the idea of swapping monthly payroll reports for quarterly ones during a little methodology makeover.
The market’s response was lukewarm, at best.
But if the BLS decides to shake things up, we might be looking at some serious downside risks for the dollar and upside for risk assets, including cryptos.
Elsewhere
Treasury Secretary Clarifies US Won’t Buy Bitcoin, Will Rely on Seized Assets for Strategic ReserveBessent says government will stop selling existing holdings but rules out taxpayer-funded purchases
Blockcast
Lido Ecosystem Foundation's head of institutional relations Kean Gilbert hops on Blockcast to confirm that institutions are here, after a long journey of discovery and education. Discover what happens during the shift from traditional finance to the forefront of blockchain innovation, and explore the strategic moves shaping the future of ethereum and liquid staking.
Access the episode from your preferred podcast platform here.
Blockcast is hosted by Head of APAC at Ledger, Takatoshi Shibayama. Previous episodes of Blockcast can be found here, with guests like Kapil Duman (Quranium), Eric van Miltenburg (Ripple), Jeremy Tan (Singapore parliament candidate), Hassan Ahmed (Coinbase), Sota Watanabe (Startale), Nic Young (Oh), Jacob Phillips (Lombard), Chris Yu (SignalPlus), Kathy Zhu (Mezo), Samar Sen (Talos), Jason Choi (Tangent), , Mark Rydon (Aethir), Luca Prosperi (M^0), Charles Hoskinson (Cardano), and Yat Siu (Animoca Brands) on our recent shows.
Blockhead is a media partner of Coinfest Asia 2025. Get 20% off tickets using the code at https://coinfest.asia/tickets.
