Friday’s surge is the latest market shift in a high-stakes wager on whether the Fed will cut rates in September, which would prompt traders to embrace riskier, higher-yield bets, like crypto.
Last week, investors pushed markets higher after the Bureau of Labor Statistics reported that inflation had only moderately increased 2.7% in July, a lower-than-expected increase that prompted traders to pile into riskier assets like crypto.
But, two days later, the BLS reported a 0.9% increase in the producers price index, or a measure of the price swings in the cost of goods produced in the U.S. It was the largest monthly increase in the index since June 2022, and traders withdrew from crypto out of fear that the Fed would likely keep rates steady in response.
As investors anticipated Powell’s remarks at Jackson Hole, where Fed chairs have customarily spoken at a conference organized by the Federal Reserve Bank of Kansas City, the crypto markets then dipped again.
But Friday’s markets wiped away much of the anxiety. Traders are now pricing an 85% chance that the Fed will cut rates in September, according to CME FedWatch, which gives day-by-day estimates of the likelihood of rate hikes or cuts. It was 72% just before Powell spoke.
