Author | jk
In just the past week, market expectations for a September rate hike have risen from under 50% to over 80%.
Such a rapid change in pricing is uncommon in the history of Fed Watch over the past year, and Bitcoin and a host of crypto-related stocks have already begun to price in this possibility.
Last week, the Federal Reserve maintained the target range for the federal funds rate at 3.50% to 3.75% in its July 29 meeting, voting 9 to 3—a fifth consecutive meeting with no change. However, unlike previous decisions, which were nearly unanimous, this vote revealed clear divisions. Three officials—Cleveland Fed President Harker, Minneapolis Fed President Kashkari, and Dallas Fed President Logan—voted against the decision, advocating for an immediate 25-basis-point rate hike, citing that inflation has remained above the 2% target for more than five consecutive years. In the post-meeting press conference, Fed Chair Walsh offered a vivid remark, saying he “asked for a decent family feud—and got one.”
This divergence directly increased market expectations for a September rate hike. According to data from the CME FedWatch tool, just one week before this meeting, the market's pricing for a September rate hike was below 53%. However, within just one week, as rising oil prices fueled inflation concerns, this probability surged to 82% before settling at 73%. The 9-3 voting outcome reflects growing hawkish sentiment within the committee, and the market widely interprets this as a significant increase in the likelihood of a September rate hike.
Current probability of an interest rate hike. Source: CME
However, it should be noted that there remains a significant gap between market pricing and economists’ overall expectations. According to a FactSet survey of economists, most still anticipate that interest rate cuts will resume by 2027, with a cumulative reduction of around 50 basis points. In other words, the pricing in short-term interest rate futures reflects more of a sensitive reaction to recent oil prices and inflation data.
From a broader perspective, the renewed expectations for rate hikes follow a clearly defined transmission chain, with the geopolitical conflict near the Strait of Hormuz as the primary catalyst. Since July, tensions between Iran and related parties have escalated repeatedly, threatening this critical waterway—approximately 30 miles wide—that handles about 20% of the world’s daily liquid oil shipments. As a result, WTI crude oil futures rose by approximately 20% within July. Notably, this is not the first such conflict, but the second outbreak of tensions between Iran and the U.S. since the agreement. Energy prices are one of the most direct components in the Fed’s preferred PCE inflation measure; rising oil prices quickly translate into the next inflation data release, which is precisely why markets rapidly repriced the probability of rate hikes over the past week.
Regarding the data points, the June CPI report, released on July 14, showed a year-over-year increase of 3.5%, the most optimistic reading since the outbreak of the Iran conflict, primarily due to a temporary relief from a 5.7% month-over-month decline in energy prices during the ceasefire. However, this relief appears fragile, and the recent rebound in oil prices in July is likely to be reflected in the next data release. The next key milestone widely watched by markets is the July CPI report due on August 12. If the data confirms that the moderation seen in June is genuine and sustainable, the probability of a September rate hike is likely to revert toward economists’ consensus. Conversely, if the data shows renewed inflationary pressure driven by energy, particularly as the Iran ceasefire remains incomplete and oil prices stay above $80, the likelihood of a September hike could rise further.
The Fed’s own signals are reinforcing this expectation. The dot plot from the June FOMC meeting showed that 9 out of 18 participants now expect at least one rate hike this year, a shift from March, when the median projection still anticipated rate cuts. The core PCE inflation forecast was raised to 3.3% by 2026. Since Waugh’s appointment, the Fed has explicitly simplified its policy statement and downplayed forward guidance; notably, she did not submit individual economic projections at the June meeting—an unusual move—but her remarks during the press conference were interpreted by markets as hawkish, directly boosting expectations for a rate hike. Some policymakers have voiced dissent; for instance, Milan, who was in office earlier this year, publicly questioned the logic of raising rates when core CPI monthly readings had turned negative. Overall, over the coming month, in addition to the evolution of geopolitical developments, the July CPI data, the August nonfarm payrolls report, and statements from Fed officials at the Jackson Hole symposium will serve as key windows to assess whether a September rate hike is likely—this will also amplify volatility in crypto assets and related U.S. equities around these data releases.
What is the impact on crypto assets?
For crypto assets, rising expectations of interest rate hikes have never been a good sign. Bitcoin is currently trading in a range of $64,000 to $65,000 and remains highly sensitive to signals from the Federal Reserve. Over the past year, Bitcoin has repeatedly demonstrated characteristics of a high-beta risk asset, with its price movements increasingly correlated to cycles of U.S. dollar liquidity. Since the beginning of the year, macro shocks—including tariff policies and geopolitical risks—have pushed Bitcoin below $64,000, while traditional safe-haven assets like gold and silver posted double-digit gains during the same period. This divergence itself indicates that markets do not view Bitcoin as a true safe-haven asset, but rather as a liquidity-sensitive risk asset. If the Fed indeed shifts toward rate hikes in September, the opportunity cost of holding non-yielding assets like Bitcoin will rise further, strengthening the incentive for capital to flow back into money market funds and short-term bonds, directly pressuring sentiment in the crypto market in the short term.
However, the impact of rate hikes on Bitcoin is not linear. After entering 2023, despite the Federal Reserve continuing with two consecutive rate hikes, Bitcoin rose by 21% against the trend. The actual price impact of the last two hikes was already quite limited, indicating that when the rate hike path has been fully priced in by the market and signs of marginal improvement in inflation data emerge, rate hikes themselves may no longer continuously suppress prices. What truly matters is often the shift in expectations regarding policy direction, rather than any single rate hike. This historical precedent provides a useful reference for observing the potential September rate hike: if the September hike ultimately occurs but is interpreted by the market as the end rather than the beginning of the tightening cycle, Bitcoin’s decline will be brief and limited, and the market will quickly shift toward expectations of an upcoming rate cut cycle.
What affects U.S. stocks?
In the U.S. stock market, the price movements of cryptocurrency-related stocks and associated assets tend to amplify the volatility of Bitcoin itself. Stocks of companies such as Coinbase (COIN), Circle (CRCL), and MicroStrategy (MSTR) typically react more sharply to interest rate expectations than spot Bitcoin: rising expectations of rate hikes imply higher risk-free rates, which directly increase discount rates in stock valuation models, exerting particular pressure on growth-oriented and high-valuation tech stocks. One of the key drivers behind the U.S. stock market’s rally over the past few years has been valuation expansion fueled by expectations of rate cuts; should this expectation reverse, markets must reprice assets for higher funding costs, making an increase in index volatility almost inevitable. Notably, several high-weight technology stocks in the S&P 500 and Nasdaq indices have already experienced significant pullbacks. If rate hike expectations for September are further realized, valuation pressures on these core weighted stocks could transmit to the broader index level.
At the same time, this surge in interest rate hike expectations coincided with the most capital-intensive earnings season for tech giants. Between late July and early August, Google, Microsoft, Meta, Amazon, and Apple sequentially released their second-quarter results, with market reactions showing clear divergence—the core point of contention being whether capital expenditures would translate into actual revenue. Google’s cloud revenue surged 82% year-over-year, posting the highest growth rate in its history, but its full-year capital expenditure guidance was raised to a range of $195–205 billion, causing its stock to drop 7%. Meta’s revenue grew 28% year-over-year, slightly exceeding expectations, yet its capital expenditure guidance was also raised to $130–145 billion, leading to a nearly 9% plunge in its stock price. Apple’s shares fell sharply due to weaker-than-expected revenue guidance for the fiscal quarter and concerns over supply chain constraints. Only Microsoft delivered a market-pleasing performance: its annual cloud revenue surpassed $100 billion for the first time, and it lowered its fiscal year 2027 capital expenditure guidance from $190 billion to $175 billion, sending its stock up over 15% in a single day—the largest single-day gain in nearly 18 years. Combined, the capital expenditures of these four companies are nearing $750 billion, and the market’s evaluation criterion has shifted from “how much are they willing to spend on AI?” to “can these investments be converted into tangible revenue and cash flow?”
This divergence implies greater sensitivity in September. These giants primarily rely on bond issuance and equity financing to bridge their cash flow gaps; if interest rates are indeed raised in September, rising corporate financing costs will directly compress the marginal returns on their capital expenditures. At that point, market tolerance for the narrative of “burning cash to buy AI-driven growth” may further narrow, and companies with negative cash flows and insufficient growth stories could experience even more volatile price movements than during this July cycle.
For the September FOMC meeting, the most accurate assessment is that a rate hike has shifted from being a low-probability event nearly ruled out at the start of the year to a mainstream scenario priced in by markets with over a 50% likelihood. For investors in crypto assets and related U.S. equities, oil price movements, monthly CPI data, and statements from Fed officials at events such as the Jackson Hole symposium will be key indicators over the coming month for whether the probability of a rate hike continues to solidify.