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The Fed, once again, challenged on its own ground
Progress toward resolving the US government shutdown remains limited despite an increase in bipartisan dialogue. Senate Majority Leader John Thune noted that “a lot more conversations” are happening across the aisle, suggesting some softening in tone compared with previous weeks. However, this has yet to yield tangible results. The Senate adjourned without voting on the House-passed continuing resolution, and no new framework for compromise has been introduced. The shutdown is now expected to extend well into November with Polymarket investors placing the probability of the shutdown persisting through 16th November at 40%, underlining widespread scepticism that an agreement will be reached soon, although the potential for a resolution by 15th November is gaining popularity as a trade.
The ongoing gridlock adds yet another layer of uncertainty to an already complex macroeconomic backdrop. The week’s other key development came from the Federal Reserve, where the FOMC voted to lower the federal funds rate by 25 basis points to a range of 3.75-4%, while signalling an end to balance-sheet reduction from 1st December. Chair Jerome Powell stated that further cuts are “not a foregone conclusion”, which we view as a form of forward guidance aimed at cooling market enthusiasm rather than a reflection of any credible assessment of the US economy, a task made virtually impossible by the current government shutdown. We remain sceptical of these comments and continue to believe that further rate cuts in December are highly likely, given the probable economic damage stemming from the shutdown, particularly when combined with already weakening employment data.
BTC underperforming, unlike ETH and SOL
The combination of fiscal uncertainty and a more hawkish Federal Reserve has kept digital assets largely range-bound, with sentiment uneven across the market. Bitcoin was the main underperformer this week, recording outflows of US$851m as of Thursday’s close. In contrast, Ethereum and Solana attracted inflows of US$133m and US$380m, respectively, over the same period.
It appears investors took Jerome Powell’s hawkish forward guidance at face value, reducing exposure amid a perceived decline in the likelihood of a December rate cut. We expect these rate expectations to recalibrate once the government shutdown ends and delayed macroeconomic data are released, which should offer a clearer picture of the underlying economic damage and policy response ahead.
