The Federal Reserve announces its interest rate decision today at 3pm Brasília time, and traders are nearly certain nothing will change.
The CME FedWatch tool, which converts interest rate futures bets into probabilities, puts the odds of a hold above 90%, while prediction markets price the probability a few points higher.
The decision reaches far beyond Wall Street, since the benchmark interest rate — what banks charge each other for overnight loans — sets the tone for what consumers pay on loans and credit cards. That rate stands between 3.75% and 4.00% after the Fed raised it in September, its first increase since 2023, in a unanimous 12-0 vote.
Consumer prices rose 3.7% in the 12 months to September, the Department of Labor reported, with petrol alone jumping 9.1% in the month. Hiring, however, is slowing: employers added just 29,000 jobs in September, against forecasts of around 90,000, and unemployment stood at 4.2%.
Oil is one of the main drivers of this inflation, trading near US$100 a barrel as the US-Iran conflict has tightened global supply. Costlier oil pushes up petrol and transport costs, which eventually show up on supermarket shelves and push inflation higher.
Higher inflation makes investors demand more interest to lend to the government, which pushes up Treasury yields, the interest rate on US government debt. The 10-year yield, the benchmark that mortgage rates follow, is hovering around 5% after peaking at 5.31% on 5 October, meaning a near risk-free return is available without owning any volatile asset.
Bitcoin pays no yield and is also too volatile for traditional investors, so when Treasuries pay more, money tends to flow out of riskier assets such as crypto assets and equities. The Bitcoin price is around US$80,700, just below a support-turned-resistance zone where sellers have repeatedly stalled rallies this year.
Leverage — borrowed money used to place larger bets — tends to exaggerate moves around Fed events. When prices move against a trader, the exchange automatically closes the position, a liquidation that adds to selling pressure. After Fed Chair Kevin Warsh's speech at Jackson Hole in August, about US$481 million in crypto asset positions were liquidated within 24 hours, more than US$360 million of it bets on higher prices.
Traders now appear focused on December, where futures and prediction markets give 75% to 80% odds of another quarter-point increase at the 8-9 December meeting. Minutes from the September meeting show most officials judged another increase would likely be appropriate before year-end, with several saying the current rate "was not restrictive or only mildly restrictive".
Analysts are calling the likely outcome a "hawkish hold", meaning rates stay unchanged but the tone leaves the door open to further increases. Asked in September whether more increases would follow, Warsh said: "I'm not going to prejudge any future decisions we make." He also told reporters: "This won't surprise you: I'm not in the business of forward guidance," the Fed's way of declining to signal future moves.
Dissenting votes — votes against the majority — are the clearest signal in the statement. The Fed's July vote was 9-3, with three members favouring an increase, so a dissent against tightening today would suggest December is nearly locked in.
The Fed is not publishing new economic projections at this meeting. Those projections will come in December.
* Translated and edited with permission from Decrypt.
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