Fed Week Preview: Rates, Inflation, and $11B Crypto Expiry

Why This Week Matters for Your Wallet and Bitcoin

Major market events are clustering together over the next few days. The Federal Reserve holds its policy meeting, fresh inflation data arrives, and a massive $11 billion in Bitcoin options will expire on Friday.

While traders mostly expect central banks to hold rates steady right now, the upcoming announcements could spark significant volatility across stocks, traditional currencies, and crypto markets.

Federal Reserve Meeting: What to Expect on Wednesday

Back in September, the Fed increased its key benchmark interest rate to a range of 3.75% to 4.00%. That rate influences everything from consumer loans to big institutional investments.

When risk-free interest rates are higher, investors often choose safer cash options over volatile assets like technology stocks or cryptocurrencies.

According to the CME FedWatch Tool, markets price in a 90.6% chance that the Fed holds rates unchanged this Wednesday. That is a sharp pivot from a month ago, when a rate hike was the leading expectation at 64.2%.

However, December could look very different. FedWatch data puts the odds of a December rate hike at 68%, and all 100 economists polled by Reuters expect one.

Why Pause Now? Politics and Timing

Why would the Fed pause now if another hike is expected soon? Some analysts suggest calendar timing plays a big role.

We believe the committee should hike on Wednesday but won’t because the midterm elections are so close.

With the US midterm elections taking place on November 3, market watchers will be listening closely when Fed Chair Kevin Warsh speaks at his press conference on Wednesday at 2:30 p.m. ET.

Inflation and Bond Yields: Key Numbers on Thursday

On Thursday morning, the US releases the Personal Consumption Expenditures (PCE) price index, which is the Fed's primary measure for inflation.

MarketWatch reports economists expect annual PCE inflation to reach 3.7%, up from 3.4% in August. This remains well above the Fed's target level of 2.0%. Meanwhile, third-quarter GDP growth is projected to rise to 3.2%, compared to 2.2% in the prior quarter.

Bond markets are already reflecting higher rate concerns. The 10-year Treasury yield closed near 5.0% on Friday after touching 5.33% on October 14.

Historically, macroeconomic expectations have impacted crypto prices in mixed ways. In May and June, Bitcoin pulled back from near $82,000 down to the low $60,000s as rate-cut expectations diminished.

Yet, when the Fed raised rates in September, Bitcoin temporarily moved up from around $75,350 to over $76,100 within minutes.

Past performance of digital assets is not an indicator of future performance. You can review live market data on Bitkub Market.

Global Central Banks: Europe and Japan Step Up

Central banks outside the US are also taking center stage this week with major rate policy announcements.

• European Central Bank (ECB): Meets Thursday. A Reuters poll shows 70 out of 73 economists expect the ECB to keep its benchmark rate at 2.50%, with most anticipating a hike in December.
• Bank of Japan (BOJ): Decides Friday. The BOJ rate is currently at 1.25%, its highest mark since 1995. Shifts in Japanese rate expectations can prompt investors to unwind low-interest yen trades, impacting global risk markets.

Friday’s $11 Billion Bitcoin Options Expiry

Bitcoin traded near $80,472 on Sunday, remaining below its early October peak above $86,000.

On Friday at 4:00 a.m. ET, $10.97 billion worth of Bitcoin options are set to expire on the Deribit exchange. This represents roughly 35% of total open Bitcoin options on the platform.

Options contracts give traders the right to buy or sell an asset at a set price before a specific date. Bullish call bets currently outnumber bearish put bets by roughly two to one.

The single largest position is concentrated around a $95,000 call target, representing about 19,950 BTCBTC+0.29%. For those options to land in the money, Bitcoin would need to rally nearly 18% in five days under highly favorable market conditions.

Conversely, Deribit positioning indicates that a price near $78,000 would cause the largest number of contracts to expire without payout.

Looking Forward to December Decisions

By the end of this week, market participants will have a clearer view of economic trends heading into the final month of the year.

Key meetings scheduled for December include the Fed on Dec 8-9, the ECB on Dec 17, and the BOJ on Dec 18. Traders currently price in over a 70% chance of rate hikes across all three, making upcoming inflation and employment data critical to watch.