Investors are eagerly awaiting the Federal Reserve’s monetary policy decision on September 17, a move that could significantly impact the financial landscape. With expectations leaning towards a quarter-point rate cut, the stakes are high for risk assets such as Bitcoin, gold, and stocks. While the immediate aftermath might see some market jitters, the longer-term outlook appears promising for these asset classes.
Economic Context and Inflationary Pressures
The Federal Reserve’s decision comes amidst a complex economic backdrop. Recent data from the U.S. Bureau of Labor Statistics reveals a persistent inflationary trend, with consumer prices rising by 0.4% in August. This increase has pushed the annual Consumer Price Index (CPI) rate to 2.9%, up from 2.7% in July. Key contributors to this inflationary pressure include shelter, food, and gasoline costs. Additionally, the core CPI, which strips out volatile food and energy prices, rose by 0.3%, maintaining its steady ascent in recent months.
Parallelly, the Producer Price Index (PPI) data paints a similar picture. While the headline PPI index dipped slightly by 0.1% in August, it remains 2.6% higher than the previous year. More notably, the core PPI surged by 2.8%, marking its largest yearly increase since March. These figures collectively highlight the stubborn inflationary pressures that the Fed must navigate, even as economic growth shows signs of slowing down.
Labor Market and Bond Yields
The labor market has softened, with nonfarm payrolls increasing by a mere 22,000 in August. This modest gain was overshadowed by job losses in the federal government and energy sectors, although healthcare saw slight employment growth. The unemployment rate held steady at 4.3%, while labor force participation remained unchanged at 62.3%. Moreover, revisions to June and July’s job growth figures indicate weaker momentum than initially reported.
Despite these challenges, average hourly earnings rose by 3.7% year over year, keeping wage pressures alive. In response, bond markets have adjusted accordingly. The 2-year Treasury yield stands at 3.56%, while the 10-year yield is at 4.07%, resulting in a modestly inverted yield curve. According to the CME FedWatch, futures traders see a 93% probability of a 25 basis point cut by the Fed.
Market Sentiment and Investor Reactions
The potential rate cut has already been priced in by the markets, raising the likelihood of a “buy the rumor, sell the news” response if the Fed limits its move to just 25 basis points. Equities are currently testing record levels, with the S&P 500 closing at 6,584 after a 1.6% gain for the week—the best performance since early August. The index’s one-month chart reflects a robust rebound from its late-August pullback, indicative of bullish sentiment heading into the Fed’s decision.
Similarly, the Nasdaq Composite has achieved five consecutive record highs, ending at 22,141, buoyed by gains in megacap tech stocks. While the Dow slipped below 46,000, it still managed a weekly advance. Commodities and cryptocurrencies have also experienced a rally. Bitcoin, trading at $115,234, remains significantly higher in 2025, though slightly below its August peak of nearly $124,000. The global crypto market cap now stands at $4.14 trillion.
Gold, too, has surged to $3,643 per ounce, nearing record highs. Its one-month chart indicates a steady upward trajectory as investors price in lower real yields and seek inflation hedges.
Historical Precedent and Future Outlook
Historical analysis provides a cautiously optimistic perspective. The Kobeissi Letter, citing Carson Research, highlights that in 20 of 20 prior instances since 1980 where the Fed cut rates within 2% of S&P 500 all-time highs, the index was higher one year later, averaging gains of nearly 14%. However, the shorter term remains less predictable. In 11 of those 22 cases, stocks fell in the month following the cut. Kobeissi suggests that this pattern could repeat, with initial turbulence followed by longer-term gains as rate relief amplifies the momentum behind assets like equities, Bitcoin, and gold.
The Fed’s Delicate Balancing Act
As traders closely watch the September 17 announcement, the Fed faces a delicate balancing act. Cutting rates while inflation edges higher and stocks hover at records risks denting credibility, yet maintaining the status quo could unsettle markets that have already priced in easing. The Fed’s message on growth, inflation, and its policy outlook will likely shape the trajectory of markets for the months to come.
In conclusion, while the immediate reaction to the anticipated rate cut might be volatile, historical precedents and current market dynamics suggest that Bitcoin, gold, and stocks could ultimately benefit in the long run. As always, investors should brace for potential short-term fluctuations while keeping an eye on the broader economic landscape.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
