Fed Rate Hike Odds Hit 94.5% as Wall Street Braces for Tightening
In brief
- CME FedWatch shows 94.5% odds of quarter-point hike when Fed concludes Wednesday
- Major banks expect 50 basis points of tightening by year-end, per WSJ survey
- Bitcoin down 3.2% to $75,700 after Clarity Act fails Senate cloture vote
- 10-year Treasury yield hits 5.04%, highest since July 2007
- Trump administration pushes for rate cuts despite inflation above Fed's 2% target
The Consensus Builds
A Wall Street Journal survey published this week found nearly every major bank now expects a hike on Wednesday, with most including Barclays, Citigroup, JPMorgan, Morgan Stanley and UBS forecasting 50 basis points of total tightening by year-end. Bank of America, Deutsche Bank and RBC are more hawkish still, calling for 75 basis points of tightening this year. Goldman Sachs stands alone, forecasting only a quarter point and nothing more.
The inflation picture justifies the hawkish lean. Headline CPI ran at 3.4% annually in August, with core inflation at 2.5%, both comfortably above the Fed's 2% target. The Fed held rates steady at 3.50% to 3.75% in July, but that decision passed by just a 9-3 vote, with three policymakers pushing for a hike. The dissent signals appetite for tightening.
Trump's Rate-Cut Push Complicates the Picture
The political dimension cuts deeper. President Donald Trump handpicked Fed Chair Kevin Warsh for the job in January and, at his swearing-in in May, urged him to be "totally independent" while making clear he expected lower rates. Trump, Vice President JD Vance, and Treasury Secretary Scott Bessent have all publicly pushed for cuts in the past two weeks.
Warsh has said the president has had no influence on Fed decisions. Yet the public posturing creates noise. Markets don't love that kind of uncertainty.
Bitcoin and Bonds React
Bitcoin swapped hands at around $75,700 on Tuesday, down about 3.2% on the day after the Clarity Act, crypto's long-awaited legislative push, failed its Senate cloture vote. Bitcoin is now well off its September peak near $82,000.
The bond market's repricing has been sharper. The 10-year Treasury yield touched 5.04% this week, its highest level since July 2007, as traders priced in both the hike and the Fed's longer-term tightening path.
Higher rates make borrowing more expensive, which slows spending and hurts assets that thrive on cheaper investments, like stocks and Bitcoin. That's the mechanical headwind. The political uncertainty adds another layer of pain.
