"Blindfolded" rate cuts? Data supply cut off, the Fed is caught in the most tangled moment in history.

Written by: White55, Mars Finance

The latest minutes from the Federal Reserve's September meeting show significant divisions among officials regarding the path of interest rate cuts. While most officials support further easing of monetary policy within the year, opinions differ on the speed and magnitude of rate cuts. This decision-making process was already challenging, and the U.S. federal government shutdown that began on October 1 has further complicated matters, causing interruptions in the release of key economic data, which may force the Federal Reserve to make its next decisions without important reference points.

Internal differences of opinion

The Federal Reserve's policy meeting on September 16-17 decided to lower the benchmark interest rate by 25 basis points to a range of 4.00%-4.25%, marking the first rate cut since 2025. The meeting minutes revealed significant divisions within the Federal Reserve. Slightly more than half of the officials expect at least two more rate cuts this year, suggesting consecutive cuts at the meetings in October and December. However, seven other officials believe that there should be no further cuts this year. There were even differing opinions on starting the rate cuts in September. Some officials argued that there was no need for a cut last month, or that they could have supported keeping the rate unchanged. The only dissenting vote came from the newly appointed Federal Reserve Governor Stephen Moore, who was appointed by Trump and was sworn in on the morning of the meeting, advocating for a more aggressive 50 basis point cut.

The dilemma of policy trade-offs

The differences among Federal Reserve officials stem from varying assessments of economic risks. Most officials believe that the importance of the downside risks to the labor market has now surpassed concerns about inflation. Some officials worry that maintaining current interest rates for too long could lead to unnecessary weakness in the labor market, especially in the housing sector, which is sensitive to interest rate changes. Since the September meeting, several officials, including Fed Vice Chair Jefferson and Governor Bowman, have indicated that a weakening labor market is a reason for further rate cuts. On the other hand, some policymakers remain highly vigilant about inflation issues. Inflation has been above the Fed's 2% target for four consecutive years, and they are concerned that businesses and consumers may gradually become accustomed to higher price increases, keeping inflation persistently around 3%.

The challenge of missing data

The unique dilemma faced by the Federal Reserve is the economic data vacuum caused by the government shutdown. Data agencies such as the U.S. Department of Labor and the Department of Commerce have ceased operations, neither releasing nor collecting any data. If the "shutdown" continues until the end of October, Federal Reserve officials will meet without any key data on inflation, unemployment rates, or consumer spending to decide whether to continue lowering interest rates. Renowned journalist Nick Timiraos, known as the "voice of the Federal Reserve," pointed out that current officials can only rely on private sector data or scattered information from companies about pricing and hiring, akin to "flying in the dark."

External environment and market expectations

The external economic environment has increased the complexity of decision-making. The tariff policies implemented by Trump far exceed the levels of his first term, driving up costs for manufacturers and small businesses. At the same time, stricter immigration restrictions may further suppress job growth by slowing labor force growth. Despite facing internal divisions and data gaps, investors generally expect that the Federal Reserve will cut interest rates by another 25 basis points at the meeting on October 28-29.

According to CME's "FedWatch" data, the market's expectation probability for a rate cut in October is as high as 94.1%. Federal Reserve Chairman Powell is attempting to strike a balance between two risks—on one hand, worrying that excessively high interest rates could lead to weak employment, and on the other hand, being concerned that too much rate cutting could cause inflation to rise again. As he stated last month: "The dual risks mean there is no risk-free path."

The Potential Impact of Interest Rate Cuts on Bitcoin Trends

From a historical perspective, the impact of the Federal Reserve's interest rate cuts on Bitcoin prices is not simply a case of "a cut leads to a rise," but rather shows characteristics of short-term volatility intensification and medium to long-term favorable trends.

Short-term impact: Bitcoin prices may rise during the interest rate cut expectation phase, but after the cut is implemented, there may be an adjustment of "buy the expectation, sell the fact." Historical data shows that during the interest rate cut cycle in 2019, Bitcoin rose during the expectation phase but then fell by 30% after the cut was implemented before starting to rebound.

Mid- to long-term impact: Interest rate cuts typically enhance global market liquidity, reduce capital costs, and prompt investors to shift towards high-risk, high-return assets. Bitcoin is regarded as "digital gold" and, in the context of rising inflation expectations or fiat currency depreciation, its anti-inflation properties may attract more capital inflow.

The market currently widely expects the Federal Reserve to cut interest rates by 75-100 basis points in 2025, which could release $6-8 trillion in liquidity. This backdrop may provide support for Bitcoin prices in the long run.

Federal Reserve Chairman Powell is trying to strike a balance between the high interest rates leading to weak employment and the low interest rates fueling inflation. Facing dual pressures from both domestic and international fronts, his decision-making dilemma is evident: "Bilateral risks mean there is no risk-free path." The interest rate meeting at the end of October will be a significant test of the Federal Reserve's decision-making capabilities. If the government shutdown continues, Federal Reserve officials will have to make decisions based on limited information and their own judgments about the economic situation in the absence of key data, which may further exacerbate existing internal divisions.