Bitcoin Consolidates Amid Shift in Fed Rate Hike Expectations

Bitcoin's price has been consolidating as the market adjusts to a reduced expectation of another near-term interest rate hike by the Federal Reserve. The trigger for this shift was New York Fed President John Williams, who stated that the September 25bp hike had reduced the urgency for further tightening and that the Fed now has time to assess incoming data. As a result, the implied probability of an October hike fell from 75% to around 50%, and subsequent data pushed it lower still, to roughly 37%.

Some economic indicators have been softer than expected, including August's JOLTS openings, which fell to 7.079M, the lowest in five months. September's consumer confidence dropped to 81.9, its weakest reading since 2014, and core PCE came in below expectations at 0.2% month-on-month and 3.0% year-on-year. However, other indicators have been more resilient, with second-quarter GDP revised to 2.2% annualised and consumer spending rising 0.9% in August.

For Bitcoin, lower expected policy rates reduce the relative attractiveness of cash and short-duration Treasuries, which typically improves the backdrop for liquidity-sensitive assets. However, the 10-year Treasury briefly reached around 5.3%, its highest level since 2002, creating a divergence in the market. This means that investors are distinguishing between Fed policy at the front end of the curve and concerns around fiscal sustainability at the long end, with Bitcoin sitting at the intersection.