Wall Street Banks Raise PCE Forecasts, Fueling Bets on September Fed Rate Hike

The crypto market is on high alert as Wall Street banks raise their forecasts for US PCE inflation, pointing to a potential Fed rate hike in September. The latest Consumer Price Index (CPI) data came in line with expectations, and Barclays now expects monthly US core PCE inflation at 0.25%, up from its previous forecast of 0.22%. Goldman Sachs sees the figure at roughly 0.26%, while Nomura raised its projection from 0.245% to about 0.278%.

The revised forecasts have fueled concerns that inflation could remain sticky, making the Fed more cautious about easing financial conditions. This has led to increased bets on a potential Fed rate hike in September, with the CME FedWatch Tool showing odds of a 25 bps rate hike at 87.3%. Prediction markets data also show a 80% chance of a Fed rate hike in September.

Crypto market traders are closely watching these developments, as higher policy rates can create tougher conditions for risk assets like Bitcoin and other cryptocurrencies. Analyst Ted Pillows notes that major financial institutions including Bank of America, Barclays, Citigroup, Deutsche Bank, Goldman Sachs, Piper Sandler, TD Securities, and Wells Fargo expect a September Fed rate hike.

With the market already spooked by the European Central Bank's recent 25 bps rate hike to curb inflation, traders are turning cautious ahead of the Fed's next week gathering. The recent US PPI reading has also slightly exceeded market forecasts, forcing traders to stay on the sidelines in this topsy-turvy scenario.