UBS Turns Hawkish, Sees Two Rate Hikes in September and December
UBS has revised its forecast to expect two Federal Reserve rate hikes in September and December, citing strong August employment data and inflation risks. The bank's hawkish stance extends macroeconomic headwinds for Bitcoin into year-end, as rising interest rates increase the opportunity cost of holding non-yielding assets like Bitcoin. The tight monetary environment may suppress risk appetite and leverage, keeping pressure on crypto markets until potential policy shifts occur.
According to UBS's latest forecast, the Federal Reserve will raise interest rates by 25 basis points (0.25 percentage points) each in September and December. This is a change from their previous expectation of no monetary policy adjustment this year. The bank's rationale includes strong August employment data, hawkish statements from the Federal Reserve, and inflation risks from supply chain bottlenecks.
Market expectations have already converged on this assessment, with futures market pricing indicating a 58% probability of a 25 basis point rate hike at the September 15-16 FOMC meeting. For Bitcoin, the risk lies in the fact that rising rate hike expectations could support US Treasury yields, strengthen the attractiveness of dollar assets, and thus reduce investors' risk appetite.
The US Bureau of Labor Statistics reported that 162,000 jobs were added in August, with the unemployment rate remaining at 4.1%. However, the employment recovery is not balanced, with the food service industry adding 59,000 jobs and local government education departments adding 42,000 jobs, while the information technology industry lost 23,000 jobs.
Federal Reserve Governor Christopher Waller articulated this trade-off in a speech on September 3rd, prior to the release of the jobs data. He stated that if inflation continues to improve, the Fed could keep interest rates unchanged; however, if August's inflation data remains high, he would consider supporting a rate hike.
UBS's forecast also extends the potential monetary tightening cycle beyond just the next policy meeting. The market will react to the Fed's next decision and price in the interest rate expectation path across multiple consecutive meetings. The Fed's explanation of the monetary transmission mechanism illustrates how policy expectations affect long-term interest rates, asset prices, and exchange rates.
Financing conditions may tighten before policymakers actually implement rate hikes. According to UBS's outlook, the risk for Bitcoin lies in the possibility that this tight monetary environment will persist until the end of the year. Rising US interest rate expectations will keep yields high, further increasing the attractiveness of dollar-denominated interest-bearing assets.
The next key test is the August Consumer Price Index (CPI) to be released on September 11th, ahead of the Federal Open Market Committee (FOMC) meeting on September 15th and 16th. If inflation cools, it will meet Waller's previous condition for supporting maintaining the current interest rate.