Fed Expected to Raise Rates as Wall Street Anticipates First Hike Since 2023
Analysts predict a 0.25 percentage-point increase at the Federal Open Market Committee meeting, with most major banks forecasting a total 50-basis-point tightening by year-end, a move that could affect bonds, stocks and cryptocurrencies.
Wall Street is preparing for the Federal Reserve’s first interest-rate increase since 2023, with the Federal Open Market Committee’s meeting set to conclude on Wednesday. CME’s FedWatch tool shows a 94.5% probability of a quarter-point hike, up sharply from below 50% a month earlier. A recent Wall Street Journal survey indicates that nearly all major banks now expect a hike, with institutions such as Barclays, Citigroup, JPMorgan, Morgan Stanley and UBS projecting a total 50 basis-points of tightening by the end of the year. Bank of America, Deutsche Bank and RBC are more aggressive, calling for 75 basis-points of tightening, while Goldman Sachs expects only this week’s quarter-point move.
The anticipated increase follows persistent inflation, with headline CPI at 3.4% year-over-year in August and core inflation at 2.5%, both above the Fed’s 2% target. Higher oil prices, driven by the conflict with Iran, add further price pressure. The Fed left rates unchanged at 3.50%-3.75% in July after a 9-3 vote, but a stronger jobs report and internal divisions pushed the committee toward tightening.
The decision places Fed Chair Kevin Warsh in a politically sensitive position. President Donald Trump, who appointed Warsh, has publicly urged lower rates and threatened trade actions if cuts are not made. Warsh has stated that the president has not influenced the Fed’s decisions.
Bond markets have already reacted, with the 10-year Treasury yield reaching 5.04%, its highest level since July 2007, and the two-year yield hitting its highest point since July 2024. Higher yields typically make Treasurys more attractive relative to riskier assets and can strengthen the dollar, which may weigh on cryptocurrencies.
Bitcoin was trading around $75,700 on Tuesday, down about 3.2% after a Senate vote on the Clarity Act failed. Analysts note that a rate hike could be bearish for crypto, though some argue that a modest move aimed at anchoring long-term yields may have limited impact on the sector. Altcoins with higher beta are expected to experience larger price swings due to thinner liquidity and greater leverage.
The Fed’s statement and updated dot plot are scheduled for release at 2 p.m. ET on Wednesday, followed by Warsh’s press conference at 2:30 p.m. ET, where markets will look for clues on whether additional hikes are anticipated.