Hammack Expresses Concern

Hammack emphasized that reaching the 2% inflation target has been impossible for the past four and a half years. She noted that price increases, especially in the services sector, continue. “We are under pressure from both sides. Is cutting rates a mistake? There’s no clear answer,” she said. Her remarks highlighted the Fed’s struggle to balance the labor market and inflation.

Expectations for Interest Rate Cuts

Following September’s 25-basis-point reduction, markets expect another cut in both October and December. According to CME data, the probability of a 25-basis-point reduction in October exceeds 89%. However, with core inflation surpassing 3%, questions arise about how much further the Fed can lower rates.

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Diverging Opinions Within the Fed

Unlike Hammack, members Christopher Waller, Stephen Miran, and Michelle Bowman advocate for aggressive rate cuts. This divergence shows significant policy differences within the Fed. Investors are closely monitoring these debates and inflation trends in the market.

The Fed now faces a critical period, trying to protect the labor market while controlling inflation. Ongoing uncertainty and discussions about interest rate cuts will play a crucial role for investors moving forward.

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Weak Economic Data from the U.S.

One of the most closely watched developments was the release of U.S. CPI data. The headline inflation rate came in slightly above expectations, suggesting that price pressures may be more persistent than previously thought.

Earlier in the week, labor market revisions shocked analysts. Data revealed that the U.S. economy created roughly 1 million fewer jobs in the year ending March than initially reported — the largest downward revision in U.S. history.

August’s jobs report added to the concerns, showing only 22,000 new jobs, while unemployment rose to 4.3%. At the same time, initial jobless claims surged by 27,000 to 263,000, marking the highest level since October 2021.

This combination of slower growth and sticky inflation has reignited fears of stagflation.

Bitcoin and Risk Assets Push Higher

Despite these worrying signals, risk appetite in financial markets remains strong. Bitcoin broke above $116,000 over the weekend and nearly filled the CME futures gap at $117,300 left from August.

U.S. equities also reflected this optimism. The S&P 500 index notched a record close for the second consecutive day, fueled by bets on easier monetary policy. This highlights investors’ renewed interest in risk-on assets.

From a technical perspective, Bitcoin’s chart continues to look constructive. Since the September low of $107,500, the price has formed a series of higher lows. The 200-day moving average has climbed to $102,083, while the Short-Term Holder Realized Price (STH RP) — a key bull market support level — has reached an all-time high of $109,668.

Rate Cut Expectations Build Momentum

All eyes are now on the Federal Reserve’s upcoming decision. According to CME FedWatch data, markets are pricing in a 25 basis-point cut in September, with a total of three cuts expected by the end of the year.

If realized, these moves could keep risk sentiment alive and serve as a bullish catalyst for both cryptocurrencies and crypto-linked equities.

*Not Investment Advice!

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Solomon: A 25 Basis Point Cut Is More Realistic

In an interview with CNBC, Solomon stated: “I don’t think a 50 basis point cut is on the table.”

Market data aligns with his cautious stance. According to the CME FedWatch Tool, only 7.8% of traders anticipate a half-point cut at the September 17 meeting. Instead, a dominant 92.2% expect a smaller 25 bps reduction. Solomon himself emphasized that this measured step is the more probable outcome.

Signs of a Softening Labor Market

Beyond rate speculation, Solomon highlighted emerging weakness in the U.S. labor market:
“There’s no question that we’re seeing some softening in employment trends,” he said.

He added that depending on how economic conditions unfold, one or even two more rate cuts could still occur before the end of the year.

Implications for the Crypto Market

Lower interest rates tend to reduce the appeal of safer assets like bonds, often pushing investors toward higher-risk, higher-reward markets such as cryptocurrencies.

Crypto trader Mister Crypto suggested on X that a 50 bps cut would trigger explosive growth: “If that happens, crypto will smash through previous all-time highs.”

However, blockchain analytics firm Santiment issued a cautionary note. The surge in social media hype around a September cut, the platform warned, may indicate investor euphoria is overheating—often a signal of a potential local top.

Shifting Bank Forecasts

Standard Chartered recently revised its outlook, pointing to August’s weaker-than-expected jobs data as justification for seeing a 50 bps cut within the realm of possibility.

Meanwhile, Bank of America, which previously ruled out any cuts in 2025, has reversed course. The bank now projects two separate 25 bps reductions—one in September and another in December.

These adjustments followed Fed Chair Jerome Powell’s remarks at the Jackson Hole Economic Symposium on August 22, where he hinted at a possible rate cut in the near term.

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A Clear Signal for the Next Meeting to Rate Cuts

Reiterating his earlier stance, Waller stated that the Fed should move ahead with a rate cut at its upcoming policy meeting. He also suggested that multiple rate reductions could follow in the months ahead, depending on economic data.

Flexibility in the Pace of Cuts

Waller emphasized that the Fed does not need to stick to a rigid pace when adjusting interest rates. “We can always recalibrate the speed of cuts,” he explained. This underscores the central bank’s data-driven approach, allowing it to adapt policy in response to evolving conditions.

Concerns Over the Labor Market

Another key point raised by Waller was the recent softening in the labor market. He stressed that the Fed must act to prevent further deterioration, highlighting the central bank’s dual mandate of maintaining price stability while supporting employment.

Inflation Outlook for Rate Cuts

While acknowledging that inflation could see slight upward moves in the short term, Waller dismissed concerns of a lasting rebound. He expects inflation to move closer to the Fed’s 2% target over the next six months, reinforcing confidence in the current policy path.

Growth Expectations: Slowdown, Not Recession

Waller ruled out the likelihood of a recession but noted that U.S. economic growth is likely to decelerate. He also argued that while tariffs may weigh on growth this year, they are unlikely to create long-term inflationary pressures.

Addressing Fed Chair Speculation

Finally, Waller clarified that he has had no discussions regarding the possibility of becoming Fed Chair, putting an end to speculation surrounding his potential candidacy.

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Labor Market and Tariff Impact

St. Louis Fed President Musalem highlighted that the labor market remains at full employment, while both labor demand and supply have declined. However, risks on the labor side combined with tariff-driven price pressures point to the possibility that inflation could remain elevated. He also stated that a half-point interest rate cut is not supported by current economic data and conditions.

FED’s Musalem: Too Early to Speak About September

While the tariff impact is expected to diminish over the next two to three quarters, Musalem noted that some economic indicators and labor market data require more cautious action in monetary policy. Considering possible downside risks in the labor market, he said it is reasonable to expect payroll breakeven levels to remain below 50K.

Musalem’s remarks underline that inflation still needs close monitoring and that the Fed’s monetary policy decisions will be shaped in light of these risks.

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Expectation: 225K
Actual: 224K
Previous: 226K 

PPI is an important inflation indicator that shows changes in producer costs. US Monthly Producer Price Index (PPI) announced at 0.9% (Expected: 0.2%, Previous: 0%)

Expectation: 0.2%
Actual: 3.3%
Previous: 0% 

Impact of U.S. PPI and Jobless Claims on the Market 

The U.S. PPI data indicates changes in producer costs and provides early signals of inflation. A high U.S PPI increase raises the likelihood of costs passing on to consumers, influencing investors’ inflation expectations. This can shape the Fed’s interest rate decisions; if there is upward pressure, a rate hike may be considered, while low or stable values support a rate cut or maintaining current levels. 

Jobless claims reflect the health of the labor market. Rising claims indicate economic slowdown and may prompt the Fed to pursue more accommodative policies. Low claims suggest a strong labor market, supporting decisions to raise or maintain interest rates. These data create short-term volatility in stock, currency, bond, and crypto markets, directly affecting investor strategies. 

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Fed’s Interest Rate Cuts Outlook and Economic Conditions

• The current Fed funds rate stands at 4.33%.

• Investors are expecting two rate cuts by the end of 2025.

• The probability of a 25 basis point cut in September has climbed to 75%.

• Fed official Bowman noted that gradual policy adjustments would continue in order to support the labor market.

At its latest meeting, the Federal Reserve kept its policy rate steady within the 4.25% to 4.50% range. Unlike previous meetings, however, the decision was not unanimous. Two of the 12 FOMC members voted in favor of a 0.25% rate cut. This split decision, along with the tone of the official statement, is being interpreted as a strong signal that a rate cut may come as early as September.

FOMC Projections and Market Expectations

The FOMC’s June projections had already indicated the possibility of two rate cuts before the end of 2025. However, with only three meetings left on the calendar, futures markets have not fully reflected this scenario yet, pricing in only about a 40% chance. On the other hand, some analysts suggest the likelihood is closer to 66%, signaling a solid—but not guaranteed—possibility.

Powell’s Hawkish Messaging

One of the factors reducing expectations of a September rate cut is Fed Chair Jerome Powell’s hawkish tone during his press conference. Powell emphasized that no decision has yet been made for the September meeting. Still, his strong focus on ongoing inflation risks, while downplaying downside risks to growth and the labor market, created a more cautious market sentiment.

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Tariffs And Uncertainty Weigh On Policy Decisions

Throughout the speech, Powell emphasized the importance of observing the effects of recently implemented tariffs before making policy moves. “We don’t want to act before seeing their impact.” he said. “Without the tariffs, inflation would likely have declined further.”

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He also acknowledged that “uncertainty has increased,” and in such an environment, “nobody wants to rush down the rate cut path.”

Policy In A Good Place, Labor Market Still Solid

Powell stated that monetary policy must be forward-looking and currently stands in a strong position. Regarding the labor market, he noted, “The labor market is not crying out for a rate cut.”

He also pointed out that near-term inflation expectations have risen due to tariffs and reminded that “inflation remains above our 2% target.” In his words, “Waiting a few more months might lead to smarter decisions.”

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Message on Interest Rate Decisions

Powell stated that the Fed will not rush to lower interest rates, saying, “We can wait for more clarity.” He mentioned that they expect inflation to reach 2%, but inflation expectations have risen due to the impact of tariffs.

Regarding the economy and labor market, Powell noted, “Many indicators show that the labor market is solid and balanced.” He also pointed out that significant progress has been made in reducing inflation, but there are signs of a slowdown in consumer spending. He emphasized that uncertainty remains regarding the impact of policies.

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One of the critical messages for the markets was, “Fed policy is not on a pre-determined path. If inflation progress halts, we may continue tight policies, but if the labor market unexpectedly weakens or inflation falls, we could ease.” Powell also added, “We will look at the possibility of inflation exceeding our target in the medium term, and despite uncertainty, the U.S. economy is in a good position.”

Customs Tariffs and Inflation Expectations

The remarks on customs tariffs were particularly noteworthy. Powell said, “It is still very uncertain how long customs tariffs will be applied.” He also stated that there is no need to redefine price stability.

Crypto markets reacted sensitively to Powell‘s statements. The lack of a clear message regarding interest rate cuts affected the movements of major digital assets like Bitcoin and Ethereum. In the coming days, as clarity on Fed policies emerges, more pronounced price movements may be observed in the markets.

In the coming days, market volatility may continue. It will be important for crypto investors to move cautiously during this period of uncertainty.

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The higher-than-expected claims point to a still-strong US labor market with low unemployment levels. This indicates that labor demand remains robust and could influence Federal Reserve policy decisions, particularly regarding interest rate hikes.

What Does the Increase in Claims Mean?

The rise in unemployment claims above expectations suggests that while the US economy is performing well, there may be some challenges ahead. However, analysts point out that this increase does not signal any significant weakness in the overall labor market, as unemployment rates remain low.

These figures may also affect the Fed‘s future monetary policy decisions. If the labor market continues to show strength, the likelihood of Federal Reserve continuing interest rate hikes could increase.

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