Bitcoin Price (BTC) Slips as Kansas City Fed’s Schmid Reiterates Hawkish Dissent

If it is possible for a central bank to cut rates and still be wrong, the Federal Reserve of the United States did this this week.

In his press conference after Wednesday’s meeting, Fed Chairman Jerome Powell hit the markets with an unexpected twist, insisting that a December rate cut was far from a done deal. The reaction was swift, with cryptocurrencies and US stocks falling on Wednesday afternoon and throughout the day on Thursday.

There was also a vote to cut taxes. A chummy bunch, FOMC members typically vote unanimously on policy. Wednesday’s decision, however, featured dissent from Kansas City Fed President Jeff Schmid, who voted to keep policy steady. (There was also a dissent from Fed Governor Stephen Miran, who voted to cut rates by 50 basis points instead of 25. A recent appointee by President Trump at the Fed, Miran’s dissent was not surprising as he had done the same in the previous meeting of the Fed).

Inflation is still too high

In a short essay Friday explaining his vote not to cut rates, Schmid questioned the Fed’s need to ease conditions, noting stocks at all-time highs, tight corporate bond spreads and strong levels of high-yield bond issuance.

Inflation, he recalled, has been above the Fed’s 2% target for years and has stopped falling. “I take little comfort in most measures of inflation expectations not moving,” he said.

But what about the deterioration of labor market conditions? Schmid suggested there isn’t much the Fed can do about it, blaming “structural changes in technology and demographics.”

Markets are slipping

In the middle of a decent rebound after yesterday’s jitters, Friday morning markets retreated only slightly in response to Schmid’s comments, with bitcoin slipping back under $110,000 and Nasdaq futures now higher by just 1.3% versus 1.7% earlier.

The rate traders are now the prices only a 66% chance of a rate cut at the Fed’s December meeting versus 73% yesterday and almost 95% before Powell and Schmid’s Wednesday surprise.