The markets are holding their breath as the next Fed meeting approaches with a possible monetary turning point as early as March. As inflation slows and the political context becomes more complex, an unexpected signal is gaining strength. According to CME data, more than 23% of traders are now betting on a rate cut. This change in mood, still in the minority, but growing, could well redistribute the cards.
In brief
- Markets are reassessing their expectations regarding the Fed's monetary policy, with a possible rate cut as early as March.
- 23% of traders now anticipate a reduction of 25 basis points, compared to 18.4% the previous week.
- A rate cut could boost liquidity in the markets, but a prolonged status quo would create tensions.
- The crypto ecosystem remains sensitive to these developments, between hope of a return of “risk-on” and the risk of a sudden correction.
A change of course: markets open to the possibility of easing by the Fed
The idea of a rate cut in March seemed premature a few days ago. However, data from the CME FedWatch Tool shows a notable change in expectations: 23% of traders are now anticipating a 25 basis point cut in the policy rate at the March FOMC meeting.
This figure was 18.4% a week earlier, marking a significant shift in market sentiment. Indeed, no scenario foresees a sharper cut of 50 basis points at this stage.
Here is the main elements which fuel this dynamic:
- The rapid evolution of market expectations: a jump of almost 5 points in one week on futures contracts linked to Fed rates;
- The absence of strong signs of persistent inflation, which leaves a window open for more accommodating action by the central bank;
- The prospect of the appointment of Kevin Warsh, former governor of the Fed, seen as potentially more restrictive;
- A gradual adjustment strategy: the markets are considering an initial symbolic gesture of 25 points more than a massive reversal of monetary policy.
This reconfiguration of expectations reflects a cautious reading, but oriented towards a scenario of rate moderation, which remains conditional on the publication of the next macroeconomic indicators.
Cryptos proof against a monetary false start
In parallel with the shift in expectations, the concrete implications of a possible movement by the Fed can already be observed on several markets. If the central bank decided to maintain its rates as they are, or even to delay any reduction even further, the consequences for overall liquidity would be immediate.
Such a posture would potentially involve a reduction in the Fed's balance sheet, which could put additional pressure on liquidity. In an environment where public debt exceeds $38 trillion, each tightening becomes an amplifying factor of stress for the markets most sensitive to capital flows.
On the crypto side, the prospect of a delay in easing could play an ambivalent role. Historically, a fall in rates favors allocation to riskier assets, including bitcoin and major altcoins. Conversely, a more prudent Fed slows down these capital movements.
The current environment is therefore conducive to increased volatility, where each macroeconomic news can cause rapid portfolio readjustments, both among institutions and individuals.
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