Fed’s October Rate Decision Sets Bitcoin’s December Test

The Federal Reserve held its federal funds target range at 3.75%–4.00% on Oct. 28, leaving investors to assess whether interest-rate expectations will rise or fall before the next policy decision on Dec. 9. The 42-day period will bring new inflation, employment and financial-market data.

The decision followed the Fed’s quarter-point rate increase on Sept. 16. Lisa D. Cook and Beth M. Hammack dissented in favor of another 25-basis-point increase. The October decision was widely expected, making the Fed’s explanation of its policy outlook a focus for markets.

September data gave policymakers different signals. Annual consumer price inflation reached 3.7%, while core inflation was 2.6%. Monthly headline and core prices rose 0.6% and 0.3%, respectively. The September employment report showed an increase of 29,000 in nonfarm payrolls and an unemployment rate of 4.2%.

Persistent inflation could support keeping interest rates high, while limited hiring growth could make officials more cautious about further tightening. The employment estimate can be revised, and one inflation report does not establish a long-term trend.

Higher expectations for December rates could lift short-term Treasury yields and increase demand for dollar assets. That could raise the opportunity cost of holding Bitcoin, which does not pay contractual interest. Lower expected rates could reduce those pressures, though the reason for the change would affect investor demand.

If markets expect lower rates because inflation is easing while economic growth remains steady, demand for risk assets could improve. If lower rates are expected because employment and growth are weakening, investors could reduce exposure to Bitcoin despite falling yields. Demand for the dollar as a safer asset could also weigh on the cryptocurrency.

Federal Reserve Chair Kevin Warsh was scheduled to hold a press conference at 2:30 p.m. Eastern time on Oct. 28. His comments were expected to address the balance between inflation risks and weaker hiring. The October meeting did not include a new Summary of Economic Projections. The next scheduled projections will accompany the December meeting.

The period before Dec. 9 will include additional inflation, employment and financial-condition data. Investor positioning, allocations and developments in the cryptocurrency market may also affect Bitcoin’s price during that period.