Fed Rate Hike Bets Surge as Bitcoin Faces More Pressure
Wall Street is preparing for the Federal Reserve to raise interest rates for the first time since 2023, with traders now almost certain that policymakers will deliver a 25-basis-point hike on Wednesday.
The CME FedWatch tool shows a 94.5% probability of a quarter-point increase, up from below 50% just one month ago. The rapid shift in expectations has pushed investors to reconsider how long borrowing costs could remain elevated and what that could mean for financial markets.
A Wall Street Journal survey published this week found that nearly every major bank expects a rate hike at the Federal Open Market Committee's September meeting. Barclays, Citigroup, JPMorgan, Morgan Stanley and UBS are among those forecasting 50 basis points of total tightening by the end of the year.
Bank of America, Deutsche Bank and RBC have taken a more hawkish view, expecting 75 basis points of rate increases in 2026. Goldman Sachs expects only a quarter-point move this week, while Jefferies and Oxford Economics remain outliers with forecasts calling for a December cut and a cut in 2027, respectively.
Inflation Keeps Pressure on the Fed
The growing rate hike expectations come as inflation remains above the central bank's 2% target. Headline consumer prices rose 3.4% annually in August, while core inflation increased 2.5%.
Higher oil prices linked to the ongoing conflict with Iran have added further pressure to the inflation outlook. The increase in energy costs could make it harder for the Fed to ease monetary policy, even as tariffs and other economic policies continue to affect prices.
The central bank kept its benchmark interest rate between 3.50% and 3.75% in July. However, the decision passed by a narrow 9-3 vote, with three policymakers already supporting a rate increase.
A stronger-than-expected August jobs report has since added to the case for tighter policy, increasing expectations that the Fed will move ahead with a hike this week.
Trump Pushes for Lower Rates
The expected rate increase also puts Fed Chair Kevin Warsh under political pressure.
President Donald Trump appointed Warsh in January and called for lower interest rates during his swearing-in ceremony in May, while also urging him to remain independent. Trump, Vice President JD Vance and Treasury Secretary Scott Bessent have all publicly supported rate cuts in recent weeks.
Trump has even threatened to halt trade with countries running trade surpluses with the United States if borrowing costs do not fall.
Warsh has maintained that the president has not influenced the Fed's decisions. However, the expected hike could highlight the growing divide between the administration's demand for cheaper borrowing and the central bank's focus on inflation.
The decision comes just two months before the November midterm elections, when high prices and borrowing costs are expected to remain important issues for voters.
Treasury Yields Add Pressure to Risk Assets
Bond markets have already reacted to expectations of tighter monetary policy. The 10-year Treasury yield reached 5.04% this week, its highest level since July 2007. The two-year yield, which is more sensitive to Fed policy, also climbed to its highest level since July 2024.
Higher Treasury yields can make government bonds more attractive compared with riskier investments such as stocks and cryptocurrencies. They can also support the U.S. dollar, creating additional pressure on Bitcoin and other digital assets.
For crypto markets, the concern is not only the immediate rate hike but also how many additional increases could follow. Investors are now watching the Fed's updated forecasts for clues about whether interest rates will remain elevated for longer than previously expected.
Bitcoin Faces a Key Technical Test
Bitcoin was already under pressure before the Fed meeting. BTC traded around $75,700 on Tuesday, down approximately 3.2% after the Senate rejected a procedural vote on the Clarity Act, a long-awaited cryptocurrency market structure bill.
The decline has pushed Bitcoin further below its September peak near $82,000.
Technical analysts are watching the $73,200 level closely. A daily close below that price could expose Bitcoin to further declines toward $71,000, with $66,900 also identified as a possible downside target based on technical indicators.
Such a move would weaken the bullish momentum behind Bitcoin's recent price surge and put its golden cross formation under pressure.
Fed Decision and Warsh's Comments in Focus
Not all market participants view a quarter-point hike as an immediate threat to crypto. Some analysts argue that a modest increase aimed at managing long-term Treasury yields may have a limited effect on financial conditions.
Under that view, the market's reaction will depend heavily on whether the Fed's decision and Warsh's press conference deliver anything more hawkish than investors have already priced in.
Altcoins could experience larger percentage moves than Bitcoin in either direction because of thinner liquidity and higher leverage.
The Fed's statement and updated dot plot are scheduled for 2 p.m. ET Wednesday, followed by Warsh's press conference at 2:30 p.m. Traders will be looking for signs of whether officials expect only one more hike this year or a longer tightening cycle closer to the forecasts from Bank of America, Deutsche Bank and RBC.