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Last week, US CPI data was released. August CPI in the US exceeded expectations, and the persistence of core inflation, in particular, changed expectations regarding the Fed’s interest rate policy.
August data exceeded expectations. This has increased the probability of the Fed raising interest rates at its FOMC meetings on September 15th and 16th to over 85%.
With inflationary pressures in the US proving stronger than expected, the vast majority of experts predict that the Fed will raise its benchmark interest rate this week for the first time in more than three years.
At this point, the US banking giant HSBC revised its previous forecast that there would be no change in the policy interest rate, now predicting that the Fed will raise interest rates by 25 basis points each time in September and December 2026.
HSBC US Economist Ryan Wang said, “Following the August employment report and CPI data that exceeded HSBC’s expectations, we now expect the FOMC to vote for a 25 basis point rate hike at its September 15-16 meeting.”
This step will raise the interest rate to 3.75-4 percent.
Wang continued, “We believe the FOMC’s new ‘dot plot’ could point to a median forecast of 4.125 percent for the end of 2026.” Accordingly, HSBC expects a second 25 basis point rate hike at either the October 27-28 or December 8-9 meetings.
Wang added that, given the resilience of the momentum in the US economy, HSBC does not expect a rapid reversal to interest rate cuts following rate increases planned for the end of this year. HSBC forecasts that the policy rate will remain at 4-4.25 percent throughout 2027.
Goldman Sachs and JPMorgan also stated that they expect the Fed to raise interest rates this week following the higher-than-expected inflation data. In addition, UBS analysts, who previously predicted the Fed would keep interest rates stable throughout 2026, announced that they now expect two 25 basis point rate hikes in September and December.
Expectations of a FED Interest Rate Hike Strengthen!
Following the inflation data released on the 11th, Reuters conducted a survey of 101 economists. According to the Reuters survey, 86 economists, or approximately 85 percent, predicted that the Fed would raise the benchmark interest rate by 0.25 basis points at its meetings on the 15th and 16th.
If the prediction is correct, the benchmark interest rate will rise from the current 3.50-3.75% to 3.75-4.00%. This would be the Fed’s first interest rate hike since July 2023.
These results indicate a shift in market expectations. Last week, more than two-thirds of economists expected interest rates to remain unchanged, but these expectations reversed following strong inflation data. The CME FedWatch Tool now prices the probability of a Fed rate hike at 88.5%.
Furthermore, more than half of the economists surveyed stated that they expect at least one more interest rate hike by March 2027. The expectation of rising core PCE inflation, the Fed’s preferred inflation rate, and high energy prices are increasing concerns that monetary policy may tighten further.
What Could Be the Impact on Bitcoin?
The strengthening expectation that the Fed will raise interest rates can be considered a negative development for Bitcoin in the short term. Rising interest rates support the dollar and US bond yields, potentially reducing investor interest in risky assets. This could create selling pressure on Bitcoin.
In particular, the strengthening expectation that the Fed may make multiple interest rate hikes by the end of 2026 could lead to increased volatility and short-term pullbacks in Bitcoin.
*This is not investment advice.