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This Week’s Setup: All Eyes on Powell and the FED?
Good afternoon all, last week's hotter-than-anticipated CPI print did not derail risk assets, and markets pushed higher. This week, all eyes are on Powell and the FEDWhy The Above Matters?
Historically, markets perform well in an environment where the Fed is cutting Interest Rates (assuming the rate cuts are for the right reasons). With the market now pricing a 100% chance of an Interest Rate cut at Wednesday's Meeting, the market will want to see this delivered.Alongside this, markets will be paying close attention to the Powell Press Conference and the newly updated Summary of Economic Projections. In the Summary of Economic Projections, market participants will want to see what the FED's outlook is for potential further cuts through to year-end 2026. The market is currently pricing for 3 cuts for the remainder of 2025, with 2 more cuts priced in 2026. The market will want to see that the FED are projecting similarly.
The Press Conference is also important. Market participants will be looking for Powell to give future guidance to the FED's thinking around inflation - is it hotter than expected, and are they still treating it as transitory? And the weakening labour market - how weak is it in the FED's eyes? And does this lead the FED to want to cut to slightly restrictive (3.25%), neutral (3.00%), or less than neutral (sub 3.00%)?
Expectations for Wednesday's FED Meeting:
The market is fully priced for a 25bps cut, with an extremely small chance that the FED cuts by 50bps. However, we see it as nailed on that the FED cut rates by 25bps, and that this is priced and therefore the market won't move too much on this, but rather the Dot Plot and Powell's forward guidance.What's The Difference Between a Hawkish and a Dovish Outcome? And The Potential Market Reaction?
- A Hawkish Outcome: A hawkish outcome would be a FED that only sees another interest rate cut in 2025 (for the December Meeting), and Powell potentially suggesting that he and the FED only see a few more cuts to bring the rate down to slightly restrictive territory, and then to pause again. The market would likely sell off on this, meaning Yields up a tad, Dollar up, and risk assets (Equities and Crypto) down.
- A Dovish Outcome: A dovish outcome would be a Dot Plot that signals cuts in the October and December Meetings, along with another 2-3 cuts in 2026. This would also likely have to coincide with comments from Powell that suggest that the labour market needs supporting, but it isn't severely weak.nThe market reaction would be Yields flat to down, Dollar down, and risk assets (Equities and Crypto) up.
- Our Base Case: Our base case is for the FED to cut by 25bps at Wednesday's Meeting for Powell and the FED's Dot Plot to signal more cuts at upcoming Meetings. We would expect risk assets to move up on this.
Cryptonary's Take
A hawkish surprise with a smaller cut or firmer tone would likely see crypto fade back, with BTC drifting toward the $112k area. A dovish outcome with a 25bps cut and softer guidance would likely send risk assets higher, with BTC breaking above $117k and eyeing $120k plus.Our base case is for a 25bps cut with dovish forward guidance, which would support a continuation of the risk-on environment. BTC is consolidating above $114k, $112k is our key support, $116.6k–117k is the breakout zone, and a clear move through it would open a run toward $120k and higher.
We remain risk-on and positioned in majors and selective memes, with Aura as our high conviction play. Looking ahead, the next key catalyst after the FED will be September jobs revisions, which we will cover closely.
BTC:
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