Fed Poised for Likely Rate Reduction Amid Cooling Inflation and Economic Ambiguity

According to the CME FedWatch tool, the likelihood of the Federal Reserve lowering interest rates by 25 basis points in October has soared to 98.9%, as both economists and investors prepare for what appears to be an almost certain policy adjustment,

. This development comes after a week marked by strong global equity inflows totaling $11.03 billion, spurred by cooling U.S. inflation and renewed optimism over U.S.-China trade discussions, which have supported risk assets such as cryptocurrencies, .

The expected rate reduction by the Fed is largely attributed to softer inflation figures, with the U.S. Consumer Price Index (CPI) increasing 3.0% year-over-year in September—slightly below the 3.1% forecast, as noted by Coinotag. The core CPI, which excludes the more volatile food and energy categories, also fell short of projections, rising 0.2% month-over-month and 3.0% annually, Coinotag reported. These numbers have fueled speculation that the central bank will move to loosen monetary policy to counteract a slowing economy. Should the Fed implement a 25-basis-point cut, the federal funds rate would shift to a 3.75%–4.00% range, reflecting the overwhelming consensus among economists—115 out of 117 surveyed by Reuters anticipate the move, Coinpedia stated.

Expectations of a rate cut have already sparked a global appetite for risk. U.S. equity funds led with $9.65 billion in new investments, reversing two consecutive weeks of outflows, while Asian funds attracted $2.81 billion, Coinotag found. Technology stocks, which received $2.92 billion—the highest since early October—demonstrated a shift toward growth-oriented assets, Coinotag added. Gold funds also remained popular, accumulating $7.16 billion in inflows over the past nine weeks, as investors sought to diversify amid ongoing economic uncertainty, Coinotag reported.

This environment has indirectly benefited cryptocurrencies.

and other digital currencies have gained as improved liquidity and lower opportunity costs for holding riskier assets have made them more attractive, with lower rates typically channeling capital into alternative investments, Coinotag observed. The connection between equities and crypto has grown stronger, with industrial and financial shares rallying—Lifco jumped over 10% on robust earnings, and both Saab and NatWest recorded double-digit increases, Coinotag noted.

Nevertheless, the Fed's upcoming decision is complicated by delayed economic reports due to the U.S. government shutdown. Critical employment and inflation data, including September's CPI, have been postponed to October 24, just ahead of the October 28–29 policy meeting, Coinpedia highlighted. If the CPI comes in weaker than expected, it could prompt faster rate cuts and further lift risk assets, but a stronger reading might dampen market enthusiasm, Coinpedia warned.

There is still debate among economists regarding the longer-term outlook for rate reductions. Federal Governor Christopher Waller backs a 25-basis-point cut in October but emphasizes that future actions will depend on labor market and GDP trends, Coinpedia reported. In contrast, Governor Stephen Miran favors a more aggressive approach to easing, aligning with President Trump's calls for swifter cuts, Coinpedia added.

Market participants are encouraged to keep a close eye on the Fed's forthcoming decisions, as the direction of interest rates will influence liquidity and asset prices. Global bond funds, which saw $17.33 billion in inflows this week, indicate a balanced risk approach, with government and corporate bonds attracting $3.13 billion and $1.78 billion, respectively, according to Coinotag.

In conclusion, the combination of moderating inflation, positive geopolitical developments, and anticipated Fed easing has created a supportive environment for both stocks and cryptocurrencies. As the October meeting draws near, investors will scrutinize the delayed data for insights into the central bank's next moves.