Fed rate hike fears ease as September increase odds drop to 58%

September Fed rate hike less certain than markets feared

Fears of an imminent U.S. interest rate hike in September may be overstated, according to market data showing just a 58% probability of an increase—far below the 90% threshold that typically signals a near-certain move. The Federal Reserve, led by Chair Kevin Warsh, has signaled concerns over persistent inflation, but traders and analysts now suggest a hike is not guaranteed.

Bitcoin and gold, which both fell on Friday after Warsh’s hawkish comments, could see further gains if the Fed holds rates steady. The two assets—often seen as hedges against inflation and currency devaluation—rallied strongly in August, with Bitcoin up 23% and gold rising 10%.

Warsh’s remarks at the Jackson Hole Symposium highlighted inflation at 3.7% (well above the Fed’s 2% target), but market pricing suggests investors are skeptical of immediate action. Analysts argue that even if a hike occurs, its purpose may be to stabilize bond markets rather than tighten financial conditions.

Key numbers and market reaction

• 58% – Current probability of a September rate hike, per CME’s FedWatch tool, below the 60-70% range where the Fed usually aligns with market expectations.
• 3.7% – U.S. inflation rate (PCE index), the Fed’s preferred measure, remaining above the 2% target.
• 3.5%-3.75% – Current federal funds rate range; a hike would likely add 0.25%.
• Bitcoin dropped 3% to ~$77,000 on Friday but recovered slightly, while gold also declined before stabilizing.

What analysts say about the Fed’s next move

Jim Bianco of Bianco Research called the September meeting a "lean hike, not a done deal," noting that the Fed often avoids surprising markets when probabilities sit below 60-70%. Other firms, including ABN AMRO and Brandywine Global, share this skepticism.

Robin Brooks, a former chief economist at the Institute of International Finance (IIF), argued that any September hike would aim to "anchor" long-term Treasury yields—not tighten policy. By signaling credibility on inflation, the Fed could prevent a repeat of July’s bond sell-off, indirectly supporting assets like Bitcoin and gold.

Brooks described such a move as "performative," designed to keep financial conditions loose rather than restrict them. If correct, this could extend the recent upward trend for Bitcoin and gold, which thrive in environments where real interest rates (adjusted for inflation) remain low.

Why this matters for crypto and gold investors

Bitcoin and gold often move inversely to the U.S. dollar and Treasury yields. If the Fed skips a hike—or frames one as a technical adjustment rather than a policy shift—both assets could continue their August rally. The Fed’s focus on inflation credibility, rather than aggressive tightening, may also reduce downward pressure on risk assets.

For crypto traders, the key watchpoints are:

1. Whether the Fed’s September decision aligns with the 58% probability (a surprise hike could trigger volatility).
2. How bond markets react—stable or falling yields typically benefit Bitcoin and gold.
3. Geopolitical risks (e.g., recent U.S.-Iran tensions) that could drive safe-haven demand for both assets.

What happens next

The Fed’s next policy meeting is in September, with the CME FedWatch tool providing real-time updates on rate-hike odds. Key data to watch before then includes:

• U.S. jobs reports, which could influence inflation expectations.
• Treasury yield movements, particularly the 10-year bond, which Brooks cited as a target for Fed stabilization efforts.
• Further comments from Fed officials, though Warsh’s Jackson Hole speech may have set the tone for now.

Sources

• CoinDesk