The Federal Reserve is widely expected to raise interest rates for the first time since 2023 when its policy committee concludes its meeting Wednesday. CME's FedWatch tool puts the probability of a 25-basis-point hike at 94.5%, which would raise the federal funds rate to 3.75%-4% from its current 3.50%-3.75% level.
A Wall Street Journal survey found that nearly every major bank anticipates the hike. Most forecasters, including Barclays, Citigroup, JPMorgan, Morgan Stanley and UBS, expect a total of 50 basis points of tightening by year-end. Bank of America, Deutsche Bank and RBC project more aggressive tightening of 75 basis points this year, while Goldman Sachs expects only the quarter-point move scheduled for this week.
Why the Fed is Moving
Persistent inflation is driving the decision. Headline consumer price inflation ran at 3.4% annually in August, with core inflation at 2.5%, both above the Fed's 2% target. Oil prices, elevated due to the ongoing Iran conflict, add additional price pressure. The Fed held rates steady in July with a 9-3 vote, but three policymakers already favored a hike then.
Political Tensions
The rate increase creates tension between the Federal Reserve and the Trump administration. President Trump selected Fed Chair Kevin Warsh in January and has publicly pressured him for lower rates over the past two weeks. Vice President JD Vance and Treasury Secretary Scott Bessent have also called for rate cuts. Warsh has stated the president has had no influence on Fed decisions.
Impact on Markets and Crypto
Higher rates make borrowing more expensive and reduce the appeal of risk assets like stocks and Bitcoin. The 10-year Treasury yield reached 5.04% this week, its highest level since July 2007, as traders priced in both the hike and an extended period of elevated rates.
Bitcoin traded around $75,700 on Tuesday, down approximately 3.2% following the failed Senate vote on the Clarity Act, a market structure bill for crypto. Bitcoin is significantly below its September peak near $82,000. Analysts remain divided on the hike's impact, with some viewing a modest quarter-point move focused on anchoring long-term yields as potentially manageable for crypto's medium-term outlook. Altcoins with higher volatility are expected to see sharper percentage movements than Bitcoin.
The Fed's statement and updated projections are scheduled for 2 p.m. ET Wednesday, followed by Chair Warsh's press conference at 2:30 p.m. ET, when traders will assess whether officials signal additional rate increases beyond this week's move.
