Another week, another tone shift: Traders in conventional markets are again speculating that the Federal Reserve will soon adopt a more dovish monetary policy approach.
A solid U.S. employment report from the Labour Department on Friday might offer policymakers a reason not to retreat. Bitcoin (BTC), which frequently trades as a hazardous asset comparable to equities, may continue under pressure if this were the case.
Futures traders on the Chicago Mercantile Exchange now anticipate that the federal funds rate will peak at 4.5% next year, down from 4.7% just one week ago.
The shift shows that more traders are now anticipating a more dovish stance from the Fed, which just hiked interest rates to their highest level since 2007 and continues to emphasise that it would not lower rates in the next year. With inflation being elevated, policymakers say the fight is far from done.
Mary Daly, president of the Federal Reserve Bank of San Francisco, stated on Tuesday that policymakers have ample capacity to hike interest rates and that she is not currently concerned about the markets.
A crucial concern is whether the Fed’s rapid rate rises may begin to freeze lending and markets or represent a threat to the traditional banking system’s viability.
She stated, “We always have the lender-of-last-resort responsibilities, and if market dislocation should come about, then we would be prepared to use that, but that’s not what I’m seeing right now,”
This week’s ADP National Employment report – which measures private payrolls – and the Job Openings and Labour Turnover report, or JOLTS, revealed that the labour market is cooling, a favourable indication that the Federal Reserve’s monetary policy adjustments are beginning to take effect.
Employment scenario
However, the published figures continue to indicate a highly tight labour market. According to a tweet by Harvard professor Jason Furman, the labour market moved from extremely tight to extremely tight.
How tight is the labor market? Let’s look at four different ways to assess it: prime age employment rate, the unemployment rate, unemployed per job opening, and the quits rate. This figure scales them all to be comparable using data from roughly two decades prior to the pandemic. pic.twitter.com/HswW7Ibd4T
— Jason Furman (@jasonfurman) January 7, 2022
Surveys indicate that Friday’s Employment Situation report, planned for release at 8:30 a.m. by the Bureau of Labour Statistics of the U.S. Department of Labour, would likely reveal a similar deterioration in the labour market. According to FactSet, experts anticipate a slower gain of 250,000 jobs in September than the 315,000 recorded in August.
“The employment number is the most important economic indicator,” said John Silvia, the founder of Dynamic Economic Strategy and former top economist for Wells Fargo.
Economic expansion
However, the indications are mixed.
This week, the Atlanta Federal Reserve’s GDPNow forecasting model indicates that the gross domestic product likely climbed by 2.7% in the third quarter, compared to an estimated 2.3% just a few days before. This suggests that the economy is in a solid position to withstand more Fed-induced hardship.
Silvia said, “The upswing in the Atlanta Fed GDPNow forecast suggests the economy is OK and that the Fed could still be aggressive.” In addition, broader inflation figures indicate that the Fed must tighten.
According to market analysts, bitcoin should remain stable so long as traders do not see a solid report on Friday coupled with a significant salary increase.
Edward Moya, a senior market analyst at Oanda, remarked, “Traders would not be surprised if we saw a downside miss.” “There has been a steady flow of hiring freeze announcements or layoffs across corporate America, and the U.S. growth outlook was deteriorating in September, which should be reflected across interest rate-hike sensitive sectors.”
Edward Moya, a senior market analyst at Oanda, stated, “Bitcoin should sustain a solid demand while remaining inside its respective trading band of around $20,000.”