December Fed Rate Cut Odds Surge To 85% Following PPI Release

The odds of a December Fed rate cut have reached new highs after the September PPI inflation report. This marks a positive for Bitcoin and the broader crypto market as crypto traders continue to increase their bets on a third rate cut this year at the December FOMC meeting.

Fed Rate Cut Odds Hit New High As Softening Labor Market Takes Center Stage

CME FedWatch data shows that there is now an 85% chance that the Fed will lower rates by 25 basis points (bps) at the December FOMC meeting. This marks a new high from last week, when the odds climbed above 70%, after dropping to as low as 30% earlier in the week.

Polymarket data also shows that the odds of a 25 bps Fed rate cut next month have surged to 86%. This follows the release of the September PPI inflation data, which showed a slowdown in the month PPI and monthly and yearly core PPI, although the PPI came in higher than expectations year-over-year (YoY).

The PPI report indicates that the softening labor market remains a greater concern than rising inflation. This aligns with Fed Governor Chris Waller’s view that inflation isn’t a big problem and that his focus is on the softening labor market, which is currently showing no signs of a rebound.

Notably, U.S. private payrolls declined by an average of 13,500 weekly in the four weeks leading up to November 8. This marked a huge difference from the 2,500 weekly in the previous period. This data has also strengthened the case for another Fed rate cut at the December FOMC meeting.

Powell’s Allies Set The Tone For Another Cut

According to a WSJ report, Fed Chair Jerome Powell’s allies have created an opening for another cut at next month’s meeting. This includes San Francisco Fed President Mary Daly, who recently stated that she supports another cut in December because she sees a labor-market decline as harder to contain than a rise in inflation.

Additionally, New York Fed President John Williams last week said that he still sees room for another near-term rate cut as they look to bring monetary policy to a neutral rate. Notably, the odds of a December cut quickly jumped above 70% from around 40% following Williams’ remarks.

The market has taken a cue from their remarks, especially given that Powell has no public speeches scheduled before the next FOMC meeting on December 10. Fed Governor Stephen Miran also stated today that the U.S. economy needs larger cuts, while again signaling his support for another cut at next month’s meeting.

Miran has so far dissented at the last two FOMC meetings in support of a 50 bps Fed rate cut. However, he revealed last week that he will support a 25 bps cut in the event of a marginal vote.

Bitcoin has bounced from last week’s low of around $81,000 to a high of around $89,000 this week on the back of optimism over a third rate cut this year. Notably, the flagship crypto surged to new all-time highs (ATHs) just before the Fed made the September and October rate cuts.