Key facts
- The Federal Reserve is widely expected to raise interest rates by 25 basis points on Wednesday.
- This hike would bring the federal funds rate to a range of 3.75%-4%.
- Inflation remains above the Fed's 2% target, with headline CPI at 3.4% in August.
- The 10-year Treasury yield reached its highest level since July 2007 this week.
- Bitcoin was trading around $75,700 on Tuesday, down 3.2% on the day.
- President Trump has publicly urged Fed Chair Kevin Warsh to lower rates.
Wall Street is bracing for the Federal Reserve to raise interest rates, with CME's FedWatch tool showing a 94.5% probability of a 25-basis-point hike at the Federal Open Market Committee's meeting concluding Wednesday. This would push the federal funds rate to 3.75%-4% from its current 3.50%-3.75% range. A Wall Street Journal survey indicated that nearly all major banks anticipate this move, with many forecasting additional tightening later in the year.
The decision comes amid persistent inflation, with headline CPI at 3.4% and core inflation at 2.5% in August, both above the Fed's 2% target. Higher oil prices, influenced by the conflict with Iran, have also contributed to price pressures. The Fed held rates steady in July, but a split vote and a stronger jobs report have shifted sentiment towards tightening.
This rate hike places Fed Chair Kevin Warsh in a challenging position, as President Donald Trump, who appointed him, has publicly advocated for lower rates. Trump, Vice President JD Vance, and Treasury Secretary Scott Bessent have all voiced concerns about current rate levels, with Trump even threatening trade actions. Warsh has maintained that the president has no influence on Fed decisions.
The bond market has already reacted, with the 10-year Treasury yield reaching 5.04% this week, its highest level since July 2007. Higher yields on safe-haven assets like Treasurys can draw cash away from riskier investments such as stocks and Bitcoin.
Bitcoin has been trading lower, falling 3.2% on Tuesday to around $75,700, partly influenced by the failure of the Clarity Act in the Senate. Some analysts believe a modest 25-basis-point hike might not significantly harm crypto's medium-term outlook if it aligns with market expectations. However, higher-beta altcoins are expected to experience more volatility.