Bitcoin and Ethereum face a fresh test Wednesday as the Federal Reserve prepares to announce its next interest-rate decision. A pause would leave borrowing costs unchanged, but it would not s
Bitcoin and Ethereum face a fresh test Wednesday as the Federal Reserve prepares to announce its next interest-rate decision. A pause would leave borrowing costs unchanged, but it would not settle the question of how much more tightening lies ahead.
Bitcoin last traded at $80,528, while ether, the Ethereum network's token, traded at $2,330.58, according to Kraken data checked at 9:56 a.m. ET on Oct. 28.
The decision is due at 2 p.m. ET, followed by Chair Kevin Warsh's press conference at 2:30 p.m. For crypto holders, the immediate issue is whether the Fed leaves room for another rate increase before the end of the year.
The central bank raised its benchmark range by a quarter percentage point to 3.75% to 4% in September, with all 12 voting members supporting the move. Leaving that range in place would mean a pause after a hike, rather than a shift toward cheaper money.
Crypto's relationship with interest rates runs through investors' willingness to take risk. A 2023 IMF working paper found that U.S. monetary tightening reduced a common measure of crypto prices through that risk-taking channel.
The researchers also found that crypto's increasing connection with stocks coincided with the arrival of institutional investors. Their findings challenge the idea that digital assets automatically provide shelter when broader markets come under pressure.
Wednesday's decision also comes with a warning already in the Fed's own record. Minutes from September show that most officials considered another increase appropriate by year-end, while stressing that future decisions would depend on incoming information.
A hold on Wednesday would not, by itself, overturn that assessment.
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A Reuters poll conducted Oct. 16-20 found that 94 of 100 economists expected no rate change in October. All 100 expected an increase in December.
Those are economists' forecasts, not a Fed commitment. The central bank's next scheduled meeting after this one is Dec. 8-9.
Alex Pelle, senior U.S. economist at Mizuho Securities, argued that waiting would be a mistake.
"Them not going in October is the wrong call from a policy point of view," Pelle told Reuters. "They'll go 25 in December, but the risk is greater they end up going 50 than they don't go at all."
Michael Gapen, chief U.S. economist at Morgan Stanley, also saw the risk leaning toward more tightening.
"The risks are in the direction of a Fed that ultimately needs to hike rates more than we expect," he told Reuters.
In that survey, 38 of 92 forecasters expected at least two further increases, up from about one-fifth in September. For Bitcoin and ether, the distinction is between a temporary break in rate increases and an end to them.
Consumer prices rose 3.7% in the year through September and 0.6% over the month, according to the Bureau of Labor Statistics. Gasoline prices rose 9.1% during the month and accounted for more than half of the overall increase.
Core inflation, which excludes food and energy, was 2.6% over the year. Those figures describe the consumer price index, not the separate inflation measure used for the Fed's formal target.
The Fed's 2% objective is measured using the personal consumption expenditures price index. The Bureau of Economic Analysis describes PCE as a broad measure of consumer prices that also reflects changes in spending behavior.
The next test arrives quickly. September's Personal Income and Outlays report, which includes PCE inflation, is scheduled for Thursday, Oct. 29, at 8:30 a.m. ET.
Crypto has already reacted to that data this year. TheStreet reported that Bitcoin and ether rose after the previous PCE release came in below expectations.
Warsh's comments will frame the rate outlook Wednesday. Thursday's inflation figures will provide an early test of it.
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