The night before the Fed's decision: global markets are cautiously observing, US stocks and Bitcoin are waiting for interest rate cut signals.

As the Fed's highly anticipated interest rate decision and economic forecasts are about to be announced, global investors are preparing for market fluctuations. Although Japanese trade data in the early trading session boosted market sentiment, concerns about the Fed's next steps still keep the market cautious. This article will explore the link between traditional financial markets and crypto assets, and analyze how potential catalysts could trigger a new round of market trends.

Asian and US Stock Markets: Seeking Direction in Wait

On Wednesday, Japan's economic data showed that exports in August only declined by 0.1% year-on-year, performing better than the 2.6% drop in July. Despite a significant year-on-year decline of 13.8% in exports to the United States, strong demand from Asia and Europe offset this impact, indicating that U.S. tariffs have not had a substantial impact on the global trade landscape, which boosted market sentiment and pushed U.S. stock index futures higher. In early trading, the Nikkei 225 index rose by 0.12%, while the Hang Seng Index increased by 0.44%.

In the US market, the retail sales report for August released on Tuesday challenged market bets on the Fed cutting interest rates by 50 basis points. The report showed that retail sales increased by 0.6% month-on-month, consistent with the growth rate in July, highlighting that despite a cooling labor market, consumer demand remains strong. According to data from the CME FedWatch tool, the likelihood of the Fed cutting rates by 50 basis points fell from 5% on September 15 to 3.9% on September 16.

Fed Decision: Potential Turning Point for the Stock Market

Later today, the market will focus on the Fed's interest rate decision, economic forecast, and Chairman Powell's press conference. Economists widely expect the Fed to cut rates by 25 basis points. Unless there is an unexpected cut of 50 basis points, the market's focus will shift to the economic forecast. Although the labor market has cooled, inflation remains a tricky issue, making it difficult for the Fed to adopt an aggressive rate-cutting strategy. FOMC members must balance the slowing job growth with the rate cuts needed to support the labor market. Whether FOMC members will hint at further rate cuts once or twice in the fourth quarter will be a focal point for the market.

Expectations from Wall Street and Historical Lessons

If the Fed announces a 25 basis point rate cut and hints at two more cuts in October and December, this could send a bullish signal for interest rate-sensitive stocks like technology shares. Multiple rate cuts would significantly lower borrowing costs, boosting corporate profits and stock prices.

On the contrary, if the interest rate is only lowered by 25 basis points without a clear signal for further cuts, it may trigger a market pullback. Historically, the FOMC's economic forecasts have often led to significant market fluctuations. For example, the last time the Fed cut rates was on December 18, 2024, but its forecast for the interest rate path in 2025 was less dovish than the market had expected. In response, the Nasdaq Composite Index plummeted by 3.64%, highlighting the importance of traders remaining vigilant.

The Kobeissi Letter cites research from JPMorgan stating: "When the Fed cuts rates while the S&P 500 index is within 1% of its historical high, this typically leads to an average return of 15% over the next 12 months. However, short-term performance tends to be less stable, with the stock market closing lower 50% of the time. History shows that recent fluctuations after a rate cut on Wednesday will present a long-term buying opportunity."

Crypto Assets Market: Fund Inflows and Low Fluctuation

At the same time, data from digital asset research firm K33 Research shows that last week, global net inflows into Bitcoin exchange-traded products (ETPs) were 20,685 BTC, marking the strongest weekly inflow since July 22. This momentum has pushed the total holdings of U.S. spot Bitcoin ETFs to 1.32 million BTC, surpassing the previous peak set on July 30.

André Dragosch, the European research director at Bitwise Investments, told Decrypt that the inflow of funds into Bitcoin ETFs "is often one of the key factors determining Bitcoin's performance," adding that "the percentage share of Bitcoin's performance explained by changes in ETP fund flows has reached a historic high." He noted that compared to the fund flows of Ethereum ETFs, "investor flows seem to be 're-rotating' back to Bitcoin from Ethereum."

K33 analysts share the same view, stating that since the approval of the ETF last year, capital flows have been a key driver of Bitcoin's strong price performance, and the latest surge indicates an acceleration in demand, which may provide further support for future prices. In the past 30 days, investors have accumulated approximately 22,853 BTC through various products, exceeding the new supply of 14,056 BTC.

Technical Level and Future Outlook

The morning's upward trend confirmed the market's short-term bullish tendency, but the momentum will still depend on the Fed's interest rate decision, policy outlook, and Chairman Powell's press conference. For traders, here are some key technical levels that could determine the market direction:

Dow Jones Index

• Resistance: Historical high of 46,332 points set on September 16, followed by 46,500 points.
• Support: 46,000 points, 45,500 points, and the 50-day exponential moving average (44,964 points).

NASDAQ 100

• Resistance: The historical high of 24,647 points set on September 16, as well as 25,000 points.
• Support: 24,500 points, 24,000 points, and the 50-day exponential moving average (23,422 points).

S&P 500

• Resistance: The historical high of 6,697 points reached on September 16, and 7,000 points.
• Support: 6,500 points, as well as the 50-day exponential moving average (6,415 points).

Bitcoin

• K33 analysts wrote in an investor report on Tuesday: "Market activity remains subdued, with volatility at historically low levels." They noted that Bitcoin's seven-day volatility hit an annual low last week, before rising "moderately" as prices climbed above $115,000. It marks 11 consecutive days of volatility below 1.3%, "the second longest such streak this year."

Conclusion

On the eve of the Fed's decision, global markets are caught in a delicate balance: on one hand, strong retail data and sticky inflation have suppressed expectations for aggressive interest rate cuts; on the other hand, the resilience of Japan's trade data and the strong return of Bitcoin ETF fund flows have injected cautious optimism into the market.

History has repeatedly shown that the "language" of the Fed often moves the market's nerves more than its "actions"—whether it's subtle hints regarding the interest rate path or hidden policy tendencies in the dot plot, all of which could become catalysts for breaking the current low fluctuation pattern. Can U.S. stocks rely on historical highs to set new records? Will Bitcoin surge to challenge the $120,000 mark? The answers may lie in every detail of Powell's wording.

For investors, tonight is both a risk and an opportunity. In the interplay of short-term fluctuations and long-term trends, maintaining flexibility and adhering to key technical levels may be the optimal strategy to navigate through the fog of policy. The market always moves in expectation, and the true direction will ultimately be determined by the resonance of economic data and policy signals.