BTC & ETH Update: Goldilocks Zone Inbound

Market Commentary

Federal Reserve officials' preferred measure of inflation—the Personal Consumption Expenditure (PCE) price index—rose just 2.1% over the past 12 months. The annual increase, which marks a fresh three-and-a-half-year low, fell right in line with what many economists were expecting. The continued reduction in PCE is a welcomed sign for the FED. Below we show the PCE price index over time. 

With inflation concerns seemingly behind us, the focus has shifted to the economy’s health and despite numerous imperfections in the US economy, 2024 has been marked by remarkable economic resilience and robust expansion. The latest GDP report demonstrates continued above-trend growth in the late summer, challenging persistent skepticism from economic naysayers. This strength persists in the face of various warning signs, including a volatile job market, the impact of high interest rates on homebuilding, rising debt delinquencies, and other concerns. The labor market, while cooling off, is still relatively healthy despite some muddied data. As such, markets are fully pricing in one 25bp cut next week. 

GDP grew at a 2.8% annualized rate during July-September, following a 3% growth in the second quarter. The strong performance of underlying demand indicators is particularly noteworthy, with final sales to domestic purchasers (adjusted for inflation) increasing to 3.5% from 2.8%. Consumer spending has been a major driver, rising to a 3.7% annualized rate and contributing nearly 2.5 percentage points to overall growth. This robust consumer activity seems to contradict negative sentiment about the economy. Supported by solid hiring and wage growth, consumers continue to spend despite their expressed concerns. Even reports from major corporations about reduced spending among lower-income consumers haven't yet materialized in the broader economic data.

The economy received additional boosts from exports, federal defense spending, and an 11% rise in business equipment spending. However, there were some drags on growth, notably from the housing sector's continued decline and increased imports. The Biden White House, delivering their final quarterly GDP report before the next administration, took the opportunity to highlight these positive trends, with top economic adviser Lael Brainard emphasizing strong consumer spending, increased savings, and growing optimism tied to job opportunities and rising real wages.