Traders Price in December Fed Rate Cut as U.S. Inflation Softens Again

Crypto traders are already betting on another Fed rate cut in December. This comes as economic data showed a continued slowdown in inflation. Typically, softer inflation would bring expectations of policymakers easing monetary policy sooner rather than later.

Traders Eye December Fed Rate Cut

According to data from Polymarket, more than 71% of traders are now betting on a 25-basis-point Fed rate cut in December. The shift follows signs that U.S. inflation is steadily cooling. This has increased confidence that the central bank will have room to loosen policy further.

This new optimism comes at the back of October’s rate cut by the Fed. They cut the federal funds rate to a range of 3.75% to 4%. This move came after months of high inflation. However, new economic data indicates the slowing down of the economy, something desired by policymakers.

Meanwhile, Stephen Miran told the Monetary Matters podcast last week that he expected a December rate cut. He, however, shared that not everyone on the MPC might agree.

Also, Waller publicly advocated for another Fed rate cut in December. Waller was of the opinion that the central bank needs to act fast to save jobs.

He also said that inflation is cooling quickly enough to support a final move in this easing cycle. His opinion is different from Chair Jerome Powell’s view that interest rates should stay high longer to stop inflation from coming back.

Fed Officials Split Over Further Cuts

On another cut, reservations were shared by Chicago Fed President Austan Goolsbee, Governor Lisa Cook, and San Francisco Fed President Mary Daly.

They noted that it’s important to keep inflation under control. Kansas City Fed President Jeff Schmid also agreed to keep interest rates steady. This shows that there is still a strong debate among officials.

Andrew Brenner, Vice Chairman at NatAlliance Securities, summed up the situation by saying, “Fed officials are all over the place.” Brenner expects the Fed will cut rates at the December 9–10 meeting. He also warned that a federal government shutdown could prevent this.

Crypto traders have factored in the expectation for a Fed rate cut, and they say that it acts as a bullish trigger for risk assets.

Last month, U.S. CPI data came in softer than expected. This boosted market confidence that the Federal Reserve can deliver additional rate cuts before the year is out.