Markets bet on another 50bps Fed cut as PCE softens; DOW makes new ATH

The market is on fire, and there are talks of another 50 basis points rate cut by the Federal Reserve. A soft Core PCE index reading has everyone betting on it. 

The Core PCE, which the Fed loves to look at, came in at 2.6% year-over-year, slightly lower than the 2.7% forecast. 

So right now, the odds are split—53% for a 50 bps, and 47% for a smaller 25 bps cut.

The Dow Jones surged, climbing 137.89 points, and setting a new all-time high. Stimulus from China’s central bank PBoC has also given stock markets a much-needed jolt, helping risk assets rally even harder.

The pressure on markets

Political developments in Japan are other reasons too. Shigeru Ishiba, who’s known for being critical of the Bank of Japan’s super loose monetary policies, is likely to become the next prime minister. 

With him in charge, many expect Japan’s central bank to permanently abandon its low-interest-rate policy.

Back in the U.S., everyone’s got their eyes on the next round of labor market data. We’re talking about the JOLTs report, the ADP payroll numbers, and the unemployment rate.

If these reports come in strong, it’ll give the Fed even more reason to deliver that 50 bps cut in November, and we could see crypto soaring even higher. 

Chairman Jay Powell has already hinted that the Fed will do what it takes to keep the labor market strong while getting inflation under control. 

He’s sticking to that 2% inflation target, but it’s been a tough ride after inflation hit levels we haven’t seen in years.

Despite Powell’s efforts, the recent rate cut faced harsh criticism from Republican presidential nominee Donald Trump, who’s been blaming the Biden administration for the inflation surge.

Meanwhile, Biden is trying to flip the script, pointing to Friday’s numbers and saying they show we’re heading back to pre-pandemic levels.

The University of Michigan’s consumer sentiment index hit its highest level since April, coming in at 70.1 for the month. 

That’s a somewhat solid sign that Americans are starting to feel a little better about where things are headed.

St. Louis Fed president Alberto Musalem said he wants the Fed to ease into these rate cuts more gradually. 

He was one of the officials backing a slower approach, penciling in more than one quarter-point cut for the rest of the year. He’s worried that the economy could overheat if the Fed moves too fast.

“It’s about easing off the brake,” Musalem said.

Meanwhile, Bitcoin ETFs saw massive inflows throughout the week, closing Friday with $494.4 million. 

Ether’s might’ve been slow at first, but they’re catching up, closing the week with $58.7 million in inflows. Bitcoin has reclaimed the $66k mark, while Ethereum is holding steady around $2.7k.

Implied volatility for ETH has jumped by 8%, which shows that the market is still far from stable. But for now, ETH/BTC remains solid above the 0.04 mark.