The recent position taken by Powell in favor of a rate cut has significantly boosted optimism surrounding monetary policy. This development, highly supportive for cryptocurrency investors, was somewhat overshadowed by attempts to remove Cook from the Federal Reserve (Fed). Nevertheless, the possibility of a rate cut remains strong, suggesting a potential shift in economic strategy.
The Fed’s Transition in Focus
The Fed is transitioning from its longstanding inflation-centric policy to one that prioritizes employment. This anticipated shift, starting in September, signals a promising new era for cryptocurrency investors. As the days draw closer to the interest rate decision, significant statements from Fed members have surfaced, revealing new insights and expectations.
Fed member Waller articulated insightful points, highlighting a perceived stabilization of the 10-year treasury bond yield. He clearly stated the necessity for a rate cut in the upcoming meeting and emphasized the flexibility of implementing rate cuts sequentially. Notably, Waller acknowledged the potential for multiple rate cuts over the coming months, contingent on emerging data.
Waller underscored the importance of preventing a downturn in the labor market. He mentioned that inflation expectations are stable and that any temporary rise in inflation will not be permanent, predicting a return to around 2% in six months. Additionally, Waller noted that tariffs are not expected to cause long-term inflation and that the pace of rate cuts could be adjusted. He reaffirmed the crucial independence of the Fed, stating that while he does not foresee a recession, a slowdown in growth is anticipated due to the tariffs acting as a form of tax.
Insights from Alberto Musalem
Another Fed member, Alberto Musalem, was delivering remarks during the writing of this article. Key highlights include his view on the labor market equilibrium, which he estimates as ranging between 30,000 to 80,000 jobs monthly. Musalem warned against placing excessive emphasis on either objective, noting the risks involved.
Musalem predicts that inflation will decrease to 2% by the second half of 2026 and expects the labor market to cool while remaining close to full employment. He also mentioned that tariffs will impact the economy for two to three quarters. The moderately restrictive policy aligns with the economic data, with the tariffs expected to manifest their effects over this period before dissipating.
In anticipation of the interest rate decision in 14 days, there is a 91.8% likelihood of a rate cut, reflecting market expectations.
