Fed's Near-Certain Rate Cut Driven by Easing Inflation, Economic Uncertainty

The probability of the Federal Reserve cutting interest rates by 25 basis points in October has surged to 98.9%, according to the CME FedWatch tool, as economists and markets brace for a near-certain policy shift, a Coinpedia report. This follows a week of robust global equity inflows totaling $11.03 billion, driven by easing U.S. inflation and optimism around U.S.-China trade relations, which have bolstered risk assets including cryptocurrencies, an analysis by Coinotag.

The Fed's anticipated rate cut is underpinned by softer-than-expected inflation data, with the U.S. Consumer Price Index (CPI) rising 3.0% year-over-year in September—below forecasts of 3.1%, the Coinotag analysis noted. Core CPI, excluding volatile food and energy, also missed expectations, growing 0.2% month-over-month and 3.0% annually, according to the same Coinotag analysis. These figures have intensified market speculation that the central bank will ease monetary policy to support a slowing economy. A 25-basis-point reduction would bring the federal funds rate to a range of 3.75%–4.00%, aligning with the near-unanimous consensus among economists, as 115 out of 117 surveyed by Reuters expect the cut, Coinpedia reported.

The rate cut anticipation has already triggered a risk-on sentiment globally. U.S. equity funds led the charge with $9.65 billion in inflows, reversing two weeks of outflows, while Asian funds attracted $2.81 billion, the Coinotag analysis found. Technology sector equities, which drew $2.92 billion in investments—the highest since early October—highlighted the shift toward high-growth assets, the Coinotag analysis added. Gold funds also saw sustained demand, adding $7.16 billion in inflows over nine weeks, as investors sought diversification amid economic uncertainty, according to Coinotag.

Cryptocurrencies have benefited indirectly from this environment. Bitcoin and other digital assets have risen on the back of improved liquidity and reduced opportunity costs for holding high-risk investments, as lower interest rates typically drive capital into alternative assets, the Coinotag analysis observed. The correlation between equities and crypto has strengthened, with industrial and financial stocks surging—Lifco climbed over 10% on strong earnings, while Saab and NatWest also posted double-digit gains, the Coinotag analysis reported.

However, the Fed's decision is clouded by delayed economic data due to the U.S. government shutdown. Key employment and inflation figures, including September CPI, were postponed to October 24, just days before the October 28–29 policy meeting, Coinpedia noted. While a weaker-than-expected CPI reading could accelerate rate cuts and further boost risk assets, a higher-than-anticipated reading might temper market optimism, Coinpedia cautioned.

Economists remain divided on the broader trajectory of rate cuts. Federal Governor Christopher Waller supports a 25-basis-point cut in October but cautions that future moves depend on labor market trends and GDP growth, Coinpedia reported. Conversely, Governor Stephen Miran advocates for a more aggressive easing path, aligning with President Trump's public urging for faster cuts, Coinpedia added.

Investors are advised to monitor the Fed's upcoming decisions closely, as the path of interest rates will shape liquidity conditions and asset valuations. Global bond funds, which added $17.33 billion in inflows this week, reflect a balanced approach to risk, with government and corporate bonds attracting $3.13 billion and $1.78 billion, respectively, the Coinotag analysis showed.

In summary, the confluence of easing inflation, geopolitical optimism, and Fed easing has created a favorable backdrop for equities and cryptocurrencies. As the October meeting approaches, markets will weigh the delayed data for clues on the central bank's next steps.