The United States Federal Reserve (Fed) is about to drop its interest rate decision today at 2 p.m. ET, and the market has already made up its mind. According to the CME FedWatch tool, the probability of a 25 basis point hike to 3.75% to 4.00% stands at 92.3%. A rate hike today would mark the first one since 2023.
A month ago, these forecasts were completely different. Around 36% of the market was expecting a hike heading into Jackson Hole. Fed Chair Kevin Warsh changed that when he said inflation had not “meaningfully improved” which put the odds past 50% in days. August’s Consumer Price Index (CPI) report settled any sort of debate and the expectations of a rate hike skyrocketed.
August Inflation Came in Hot and Energy Did the Damage
Core CPI expectations coming into August were for a 0.2% month over month increase, but it rose to 0.3%. Meanwhile headline inflation held at 3.4% year over year which remains nowhere near the Fed’s target of 2%. The national average gas prices have shot up around 36% in a year according to data from AAA fuel prices. Crude is back above the $100 mark as disruptions in the Strait of Hormuz continue to strangle shipping flows out of the Iran conflict.
Then came the labour data which gives policymakers no excuse to wait. Payrolls added 162,000 jobs in August and The Bureau of Labor Statistics puts unemployment at 4.1%.
Crypto Walked Into Today Already Bruised
Total crypto market cap fell by around 3.3% on Tuesday, September 15. Bitcoin broke below $76K marking its lowest level since August 21. Coinglass data shows that over $545 million worth of long positions were liquidated yesterday on the way down.
The interest rate expectations is only one reason for this drawdown. The CLARITY Act failed a cloture vote 49 to 50 in the Senate yesterday, leaving the market structure bill stuck and removing the one near term catalyst traders had been leaning on. Spot Bitcoin exchange-traded funds (ETFs) bled $462.73 million last week, a sharp reversal after pulling in $3.52 billion across August.
Positioning going into a rate decision is rarely this one sided. Leverage got cleared out before the event rather than during it, which at least means fewer forced sellers if the announcement lands badly.
The Hike Is Priced, so the Volatility Lives Elsewhere
With 25 basis points fully discounted, the decision itself is close to a non event. What moves price is the paperwork around it.
The updated dot plot and Summary of Economic Projections (SEP) will show whether this is a one off adjustment to an energy shock or the start of a tightening sequence. The dissent count matters just as much. A unanimous hike reads very differently from a 9 to 3 split with governors pushing back on the inflation read.
Then comes Warsh at 2:30 p.m. ET. Traders will be listening for one thing above everything else: whether December is live. Any suggestion that the Fed sees a second hike before year end would hit risk assets harder than today’s move ever could.
$70,000 is the level traders are watching
Bitcoin’s next real test sits at $70,000. The level carries weight beyond the round number. It overlaps with a dense cluster of prior price action going back through this cycle and lines up with the 200-day moving average, a line that has flipped from resistance to support and back again several times over the past two years.
Holding above it keeps the current structure intact. Losing it on a daily close with ETF outflows still running would open up a much wider range below.
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