- The Fed cut rates by an expected 25 basis points
- Gold could suffer in the short run but inflation “might be the next catalyst”
- November a green month for Bitcoin and the strongest month of the year for stocks
The Federal Reserve approved the interest rate cut by 25 basis points to a range of 1.5% to 1.75%, as expected on Wednesday. But it also indicated that it would pause rate cuts from here.
It was the third rate cut this year as part of what Fed Chairman Jerome Powell calls a “mid-cycle adjustment.” The rate sets what banks charge each other for lending and is also tied to revolving consumer debt.
The Federal Open Market Committee (FOMC) also removed a key clause that it was committed to “act as appropriate to sustain the expansion.” The clause has been appearing in the post-meeting statement since June after Powell used it to announce the July rate cut.
Fed Balance Sheet Expanded by $100 Billion
The decision came the same day the government reported GDP growth of 1.9%. Well above the Wall Street estimate of 1.6%, it reflected deceleration.
Job growth slowed in recent months but remained well-above the 109,000 or so while consumer spending and stock market recorded solid performance.
Within the Fed, there has been disagreement on additional cuts but President Donald Trump had pushed hard to keep cutting rates.
The Fed meanwhile has been buying bonds again though officials insist it was to stabilize the fund rate and not QE. Still, the central bank balance sheet expanded by $100 billion over the past month and is back above the $4 trillion mark, out of which $3.6 trillion is in Treasuries and mortgage-backed securities.
Gold Gains But Not Stock Market & Bitcoin
However, US stock futures fell despite the rate cut due to investor concerns around the likelihood of a long-term trade deal between the US and China. This slump followed S&P making a new-record on Tuesday.
While stocks were trading in the negative, gold prices climbed as the US dollar weakened. Spot gold was up 0.3% at $1,500 per ounce, prices of the yellow metal have risen about 2% this month.
Michael McCarthy, chief market strategist at CMC Markets said:
“Gold might not hold its current upside in the short run as it is likely to suffer a little as some recent economic data showed modest growth in the economy,”
But a rise in inflation “might be the next catalyst for gold buying in the short run,” according to McCarthy, “as the Fed is more likely to tighten with a higher inflation rate, making some investors hedge against it (inflation).”
Bitcoin, however, is still hovering around $9,000 since falling to his level after touching $10,600 on Oct. 26.
Tomorrow, the Fed will:
– Buy ~$2bn of T-bills permanently
– Buy up to $120bn of Treasuries & MBS overnight
– Cut the Fed Funds Rate 25bps for the 3rd consecutive time
Bitcoin is a non-sovereign, hardcapped supply, global, immutable, decentralized, digital store of value.
— Travis Kling (@Travis_Kling) October 30, 2019
At the time of writing, BTC was trading at $9,228 with 24 hours gains of 1.03% as per Coincodex.
A Good Month Ahead
As we already know, historically, Q4 has been a green quarter for Bitcoin. Throughout the 10 years, November recorded greens every year except for two, in 2011 and 2018.
Just like with Bitcoin, if history is any guide, November would be good for the S&P 500 as well. The fourth quarter of the year tends to be the strongest period for stocks. Over the past decade, November has been particularly the best month of the year.
All three major indices, S&P 500, Nasdaq, and Dow Jones Industrial Average, have traded positively 80% of the time in November since 2009.
Going by Fundstrta’s Tom Lee's unpopular opinion, if S&P 500 makes a new high, Bitcoin will follow.