Two Fed Debates Set to Influence Bitcoin and Gold

Futures traders assign a 90% probability that the Federal Reserve will keep rates steady on Wednesday. Since that outcome is already factored in, attention has shifted to two internal debates at the central bank.

The first debate concerns the future direction of rates. The second involves how much officials disclose to the public. Both factors affect Bitcoin (BTC) and gold (XAU), assets that yield no interest and become less attractive when borrowing costs are anticipated to increase.

Where Will the Fed Take Rates After Wednesday?

In September, the Federal Reserve increased its benchmark rate to a range of 3.75% to 4%, the first such move since 2023.

Attention has now shifted to the possibility of a December hike. According to CME FedWatch data, futures indicate a 75% chance of a rate increase at the December 8-9 meeting.

While Fed officials concur that rates need to rise, they differ on the underlying reasons, as the economy faces an energy shock and an AI boom, the Wall Street Journal reported.

The next challenge for that forecast arrives Thursday. September inflation figures and third-quarter GDP numbers are both scheduled for release at 8:30 a.m. ET.

How Fed Mixed Signals Moved the Market Last Time

Kevin Warsh, who became Fed chair in May, declines to offer guidance on future policy steps.

“We’re committed to a discipline, not to a decision,” he said.

Investors interpreted Warsh's comments and the economic data as signaling another rate increase that week, with probabilities reaching around 70%. Subsequently, New York Fed President John Williams stated there was 'no need for urgency.' Vice Chair Philip Jefferson echoed that sentiment, according to Reuters.

By October 16, the likelihood of an October rate increase had fallen to 15%. At that point, Bitcoin and gold diverged.

Bitcoin rose from around $76,000 on the day of the hike to over $85,000 by September 30, after softer inflation data emerged. Gold moved in the opposite direction. December gold futures started October 1 near $4,190, a decline from spot gold's approximately $4,340 on hike day, according to Yahoo Finance data.

The report attributed gold's weakness to higher bond yields and a stronger dollar. The 10-year Treasury yield climbed from 5.01% on September 16 to 5.29% on September 30.

According to a Wall Street Journal tally, 16 more experienced Fed officials made at least 59 public remarks between the September meeting and the current quiet period. This number is roughly comparable to the 54 made a year earlier.

“It’s probably the worst of all possible outcomes. Nobody can force him to talk for the committee. And frankly, he can’t force other committee members to shut up,” WSJ reported, citing former Fed economist Claudia Sahm.

What a Firm or Vague Warsh Could Mean for Bitcoin and Gold

On Tuesday, Bitcoin was trading at $80,458, and spot gold was at $4,059 per ounce. The U.S. dollar remained near a one-week high, while the 10-year Treasury yield stood at 4.9% on Monday.

On September 16, BeInCrypto noted that Warsh's press conference might be more significant than the actual decision. Brandon Zureick, chief economist at Johnson Investment Counsel, reiterated this view this week.

Independent analyst Nadim Zidan outlined two scenarios. He wrote that a hawkish stance, with clear indications of a December hike, would boost yields and the dollar and test Bitcoin's support at $79,000. A dovish, more accommodating approach would allow gold to recover.

Regarding gold, Ilya Spivak, head of global macro at Tastylive, told Reuters that a drop below $3,900 could trigger a decline toward $3,800.