Wall Street Bets on Fed Rate Hike: Here's What It Means for Bitcoin, Bonds and Trump

Wall Street has rapidly shifted toward expecting a Federal Reserve interest-rate increase, with traders now pricing a 25-basis-point move as very likely when the Federal Open Market Committee concludes its meeting Wednesday. The odds of a hike jumped from below 50% a month ago to 94.5% on CME's FedWatch tool, and many large banks told the Wall Street Journal they anticipate further tightening before year-end. The Fed's shift stems from inflation that remains above the central bank's 2% goal: headline consumer prices rose 3.4% year over year in August, while core CPI was 2.5%. A stronger-than-expected August jobs report and a close July policy vote that included three officials already favoring a hike further pushed officials toward raising rates. Geopolitical developments and tariffs have also been cited as contributing to upward price pressures. Markets are already responding. Ten-year Treasury yields climbed to about 5.04%, the highest since July 2007, and two-year yields reached levels not seen since July 2024, as traders price both the immediate hike and the prospect of a longer period of higher rates. Higher yields tend to make Treasurys more attractive relative to riskier assets, lift the dollar and raise borrowing costs, which can weigh on stocks and other assets that benefit from cheaper financing. Cryptocurrencies entered the Fed decision under pressure: Bitcoin traded near $75,700 after dropping about 3.2% following the Senate's failed cloture vote on the Clarity Act, well below a September peak around $82,000. Analysts warn that a quarter-point increase could still spur volatility, especially for smaller, higher-beta altcoins with thinner liquidity. Much will depend on the Fed's accompanying statement, the updated dot plot and Chair Kevin Warsh's tone at the 2:30 p.m. ET press conference—markets are watching to see whether the Fed signals more hikes or limits tightening to the one move already anticipated.