Federal Reserve official: Cryptocurrency is just a "non-currency" risk asset, and interest rate cuts will slow but will not stop

The U.S. consumer price index (CPI) released in mid-month rose 2.4% year-on-year, higher than market expectations, raising concerns that the progress in curbing inflation has stalled, affecting the Fed's subsequent pace of rate cuts. The minutes of the September FOMC monetary policy meeting also showed that U.S. Federal Reserve officials have divergent views on the economic outlook and the extent of rate cuts. In mid-October, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said that in light of the latest CPI report, he may be inclined to pause rate cuts at the November meeting. However, several other Fed officials were unfazed by the higher-than-expected September inflation data, suggesting that the Fed could continue to cut rates.

Fed's Daly: No Reason Not to Continue Cutting Rates, Current Rates "Too Tight"

Notably, Reuters reported that on Monday, four Fed officials expressed their views on the rate cut strategy, all of whom expressed support for further rate cuts, but had different views on the pace and extent of the cuts. Three of them said they were inclined to "cut rates slowly" due to the strong economy and uncertain outlook. The only one of the four with a vote in this year's FOMC meetings, San Francisco Fed President Mary Daly, advocated for continued rate cuts, and said the current monetary policy is "very restrictive," and that she voted in September to support a large 2-point rate cut.

Fed's Schmid: Cryptocurrencies are a Risk Asset, Not a Currency

Meanwhile, Kansas City Fed President Jeffrey Schmid said in a speech on Monday that given that inflation is returning to the Fed's 2% target and the labor market is normalizing, he supports a "cautious, gradual" rather than aggressive rate cut approach. Schmid also stated his views on cryptocurrencies: "Cryptocurrencies are a risk asset, a playground, and not a currency."

Fed's Kashkari: Moderate Rate Cuts Appropriate in the Coming Quarters

Minneapolis Fed President Neel Kashkari, who also advocates a slower pace of rate cuts, reiterated on Monday that the Fed should cut rates "moderately" in the coming quarters. "Currently, I forecast a more moderate reduction over the next few quarters to reach a neutral level, but this will depend on the data." However, if he sees a sharp deterioration in the job market data, it could prompt him to advocate for accelerated rate cuts. He also said the economy's strong performance suggests the terminal policy rate in this cycle may be higher than in the past, similar to Schmid's view.

Probability of Interest Rate Cut in November

With the views expressed by three officials on Monday that future interest rate cuts should be "cautious and moderate", the latest data from the CME Group's Fed Watch tool shows that the market currently believes there is an 11% chance that the current interest rate of 4.75% to 5% will remain unchanged in November, and an 89% chance of a 1-point rate cut to 4.5% to 4.75%. The majority are still betting that the Federal Reserve will continue to cut interest rates.

The next FOMC meeting of the Federal Reserve will be held on November 7, which will be the first interest rate decision meeting after the US presidential election, and is closely watched by the market.