1. Expectations for an interest rate pause in October heat up, but the market is really focused on December

The Federal Reserve's monetary policy meeting from October 27 to 28 has entered a critical stage. The current mainstream expectation in the market is that the Federal Reserve will temporarily maintain the interest rate at this meeting, but this does not mean that the current rate hike cycle has ended.

In September, the Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75%—4.00%. This was the first rate hike since 2023, reflecting that decision-makers remain alert to persistently high inflation pressures.

Subsequently, the market's assessment of the policy path changed. On one hand, inflation data in the U.S. continued to exceed expectations in September, and economic activity showed resilience; on the other hand, several Federal Reserve officials indicated that further tightening of policy does not necessarily need to occur at two consecutive meetings.

According to a Reuters survey of economists released on October 20, 94 out of 100 respondents expect the Federal Reserve to keep rates unchanged at the October meeting, while all 100 respondents anticipate another rate hike in December. This reflects a significant increase in expectations from the market and the academic community regarding the notion of "pausing in October and acting again in December."

However, economists' predictions do not equate to the Federal Reserve having made a decision. Whether to raise rates in December still depends on future data regarding inflation, employment, and financial conditions.

Therefore, the most crucial question in this week's meeting is not just whether interest rates will be adjusted, but how the Federal Reserve will explain its pause and whether it will continue to leave room for a rate hike in December.

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2. Inflation pressure has not eased significantly; why might the Federal Reserve still pause?

From the perspective of traditional monetary policy logic, when inflation continues to exceed targets and economic growth remains resilient, central banks usually have reason to maintain a tightening stance and raise rates further if necessary.

At present, U.S. inflation is still the core topic of policy discussions.

The consumer price index and the producer price index in September were both higher than expected, and rising energy prices are increasing cost pressures on businesses and consumers. Meanwhile, investment in artificial intelligence infrastructure continues to expand, increasing demand for chips, equipment, data center construction, and electricity, which may also raise price pressures in certain industries in the short term.

Federal Reserve Chairman Kevin Walsh previously pointed out that the AI investment boom could bring additional demand shocks to the economy. AI investment has the potential to improve productivity in the future, but during a phase where investments are concentrated and supply has not increased in sync, it may also drive up certain costs.

So, since inflation pressure persists, why not raise rates immediately?

An important reason is that financial markets themselves have already tightened financing conditions to a certain extent.

Previously, U.S. Treasury yields rose significantly, leading to higher costs for mortgages, auto loans, and corporate financing. Subsequently, a sell-off of tech stocks led to a shift of some funds into Treasury bonds, causing long-term Treasury yields to fall back.

This means that the Federal Reserve does not only look at the policy rate as a single indicator. Even if rates are temporarily unchanged, changes in bond yields, credit spreads, and financing conditions may also impact consumption, investment, and economic activity.

If financial conditions have clearly tightened, the Federal Reserve needs to assess whether it is necessary to take new rate hike actions immediately.

However, if the pause lasts too long and inflation continues to spread, the market might again question the Federal Reserve's determination to control prices. Therefore, a pause does not equate to a shift toward easing, nor does it mean that the inflation risk has been eliminated.

3. Walsh's true test: how to explain the pause and keep options open for December?

Another focus of this meeting is the communication style of Federal Reserve Chairman Walsh.

Walsh has been reluctant to commit too early to future interest rate paths. He prefers to make decisions based on the latest economic data rather than guarantee the market a rate hike or cut in any particular month.

This approach has its benefits: if economic conditions change, the Federal Reserve can maintain policy flexibility.

But the problem is that when inflation pressures persist and the market generally expects further rate hikes in December, if the Federal Reserve chooses to pause this week without providing a sufficiently clear explanation, the market may perceive that the policy stance is becoming softer.

This could bring two potential risks.

First, if the market doubts the Federal Reserve's resolve against inflation, long-term inflation expectations may be affected, and U.S. Treasury yields could rise again.

Second, if Walsh sends too hawkish a signal, the market might prematurely raise future rate expectations, increasing financing costs and putting pressure on risk assets like stocks.

The U.S. midterm elections also make this communication more sensitive. The midterm elections will be held on November 3, and the market may pay attention to whether the Federal Reserve's decisions are influenced by the political environment. Walsh needs to clarify that policy judgments come from economic data and financial conditions, not from accommodating the election cycle.

Thus, he faces not a simple choice between “hawkish or dovish,” but how to accomplish two things simultaneously: explain why a pause is feasible now, and clarify under what conditions future rate hikes may still occur.

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4. How will the Federal Reserve's decision affect the dollar, U.S. Treasuries, and BTC?

For financial markets, the impact of interest rate decisions usually comes not only from the final interest rate numbers but also from whether the results meet expectations and what signals are conveyed by policy statements and the chair's speech.

If the Federal Reserve keeps rates unchanged while emphasizing that inflation remains elevated and suggesting the possibility of rate hikes in December, the market may continue to raise future rate expectations. The dollar and U.S. Treasury yields could thus find support, while risk assets may face pressure.

If the Federal Reserve maintains rates unchanged and emphasizes the need for more data to judge subsequent actions, the market may interpret this as a temporary observation phase in policy. However, this does not necessarily mean that the dollar and yields will continue to fall; it still depends on how much rate hike expectation the market has already factored in.

If the Federal Reserve unexpectedly raises rates, the market will need to reassess the policy judgments behind this decision and whether there is still room for further tightening.

For BTC, the following transmission paths can be observed:

Federal Reserve policy signals → Market interest rate expectations → U.S. Treasury yields and the dollar → Global risk appetite and capital flow → Performance of BTC and other crypto assets.

However, BTC will not always maintain a fixed inverse relationship with the dollar or U.S. Treasury yields. The cash flows, leveraged positions, and supply-demand changes in the crypto market itself will also affect short-term prices.

Therefore, when interpreting this decision, it is not advisable to focus solely on the result of “raising rates” or “not raising rates,” but rather to assess it in conjunction with the chair's speech, the dollar, U.S. Treasury yields, and market responses to capital.

📌 Mr. Web3 X: What the market is really waiting for is the policy path the Federal Reserve will chart

This Federal Reserve meeting, on the surface, appears to be a rate decision; in essence, however, it is a test of inflation assessments and policy credibility.

A pause in rate hikes in October does not mean the tightening is over; continuing rate hikes in December are still just the current mainstream expectation of the market, not a predetermined outcome.

Walsh needs to explain why, in the face of persistently high inflation, the Federal Reserve can afford to wait, and what kind of economic changes would prompt decision-makers to hike rates again.

For investors, what is truly worth tracking is whether the Federal Reserve's assessments of inflation, employment, and financial conditions have changed, and how these signals transmit to the dollar, U.S. Treasury yields, and global liquidity.

Understanding the interest rate decision is not about guessing what the Federal Reserve will do next, but rather understanding the conditions behind different policy choices and how the market might reprice.

—— I am Mr. Web3 X, growing in Web3 for 6 years, focusing on Bitcoin, the crypto market, macroeconomics, and industry trends. If you want to continuously track the impact of BTC, ETH, HYPE, and macro data on the market, you can follow the public account “Crypto Lao Ding.” Understand the hot topics, insight the logic, and build your own judgments rather than just watching price fluctuations.

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