Bitcoin fell after the Fed’s pause, but blaming interest rates misses the Binance shock

The Federal Reserve maintained its benchmark interest rate at 3.75%-4% following a 10-2 vote, with dissenters Lisa Cook and Beth Hammack advocating for a quarter-point increase. Eighteen and a half hours later, economic data showed strong growth at 3.4% annualized rate, elevated inflation, and increased household spending, creating mixed signals for markets.

Before investors could fully process the Fed's decision and economic indicators, a Binance security breach raised immediate concerns about cryptocurrency markets' ability to facilitate transactions, complicating any simple explanation for Friday's crypto selloff.

Economic Growth vs Consumer Strain

Gross domestic product expanded at 3.4% annualized rate, up from 2.2% in the second quarter and above economists' 3.2% expectation. Consumer spending and private fixed investment grew at 4.9% annualized pace, suggesting robust demand beyond components that can distort headline GDP.

Despite strong spending, households faced financial strain. Consumer outlays rose 0.5% in dollar terms, but after inflation the increase was less than 0.1%. Disposable income, measured after taxes and adjusted for inflation, fell 0.3%, meaning households paid more for barely any increase in goods and services.

Inflation Picture Remains Mixed

September's personal consumption expenditures price index was 3.6% above its year-earlier level, with the core measure excluding food and energy rising 3.1%, matching Reuters' expectations. Over the third quarter, however, PCE inflation slowed to 2.1% annualized pace, with core inflation at 2.5%, both below their second-quarter rates.