Is a September Fed Rate Hike Guaranteed? How Will Crypto and US Stocks Face the Pressure?

Original: Odaily Planet Daily (@OdailyChina)

Author: jk

Within just the past week, market odds for a September rate hike have jumped from below 50% to over 80%.

This pace of pricing shift is rare in the past year of Fed-watching history, and Bitcoin and a host of crypto-related stocks have already begun pricing in this possibility.

Last week, the Federal Reserve's July 29 policy meeting concluded with a 9-to-3 vote to hold the federal funds rate target range steady at 3.50% to 3.75%, marking the fifth consecutive meeting with no change. But unlike previous decisions that were nearly a foregone conclusion, this vote showed clear division. Cleveland Fed President Hammack, Minneapolis Fed President Kashkari, and Dallas Fed President Logan dissented, advocating for an immediate 25-basis-point hike, citing inflation running above the 2% target for over five consecutive years. Fed Chair Warsh used a colorful phrase at the post-meeting press conference, saying he "asked for a proper family fight, and got one."

This division directly pushed up market expectations for a September hike. According to CME FedWatch data, just one week before the meeting, market pricing for a September hike stood at under 53%, but within a single week, as rising oil prices fueled inflation concerns, this probability spiked to 82% at one point and now stands at 73%. The 9-3 vote represents an expansion of hawkish influence within the committee, and the market broadly interprets this as a significant increase in the likelihood of a September hike.

Current probability of a rate hike. Source: CME

However, it should be noted that there remains a notable gap between market pricing and economists' consensus expectations. A FactSet survey of economists shows that most still believe the Fed will resume rate cuts in 2027, with cumulative cuts of around 50 basis points. In other words, short-term rate futures pricing reflects more of a sensitive reaction to recent oil prices and inflation data.

From a broader macro perspective, the rekindling of rate hike expectations follows a fairly clear transmission chain, with the core starting point being geopolitical conflict near the Strait of Hormuz. Since July, conflicts between Iran and related parties have escalated repeatedly, at one point threatening this critical waterway—roughly 30 miles wide and carrying about 20% of global daily liquid petroleum shipments. WTI crude futures rose approximately 20% cumulatively in July. Note that this is not the first conflict, but rather the second outbreak of Iran-U.S. conflict following a truce agreement. Energy prices are one of the most directly transmitted components in the PCE inflation gauge that the Fed watches most closely. Rising oil prices quickly feed into the next inflation reading, which is the direct reason markets rapidly re-priced hike probabilities over the past week.

Looking at specific data points, the June CPI report released on July 14 showed a 3.5% year-over-year increase—the most encouraging reading since the Iran conflict began, largely thanks to a temporary reprieve from energy prices falling 5.7% month-over-month during the ceasefire. But this relief appears quite fragile, and July's renewed rise in oil prices is likely to show up in the next report. The market consensus identifies the August 12 release of the July CPI report as the next key inflection point. If the data shows June's moderation was real and sustainable, the probability of a September hike will likely retreat toward the economist consensus. But if the data shows energy-driven inflation re-accelerating—especially with the Iran ceasefire incomplete and oil prices holding above $80—the odds of a September hike could climb even higher.

The Fed's own signals are also reinforcing these expectations. The June FOMC meeting's dot plot showed that 9 of 18 officials now expect at least one rate hike this year, a shift from March when the median still pointed to cuts. Core PCE inflation projections were revised up to 3.3% for 2026. Since taking office, Warsh has clearly streamlined policy statements and downplayed forward guidance. He notably declined to submit his own economic projections at the June meeting, but his press conference remarks were interpreted by markets as hawkish, directly driving rate-hike bets at the time. Some committee members hold differing views—for instance, Milan, who was in office earlier this year, publicly questioned the logic of hiking when core CPI month-over-month readings had briefly turned negative. All told, over the next month, beyond the evolution of geopolitical conditions itself, the July CPI report, the August jobs report, and remarks from Fed officials at the Jackson Hole symposium will all be key windows for judging whether September truly brings a hike—and this will simultaneously amplify volatility in crypto assets and related U.S. stocks around data releases.

What does this mean for crypto assets?

For crypto assets, rising rate hike expectations have never been good news. Bitcoin is currently trading in the $64,000–$65,000 range, remaining highly sensitive to Fed signals. Bitcoin has repeatedly demonstrated high-beta risk-asset characteristics over the past year, with its price action showing increasingly strong correlation with dollar liquidity cycles. Since the start of the year, amid tariff policies, geopolitical risks, and a series of macro shocks, Bitcoin briefly fell below $64,000. During the same period, traditional safe-haven assets like gold and silver posted double-digit gains. This divergence itself shows that the market does not treat Bitcoin as a true safe-haven asset, but rather as a liquidity-sensitive risk asset. If the Fed indeed pivots to a rate hike in September, the opportunity cost of holding non-yielding assets like Bitcoin will rise further, and the incentive for capital to flow from risk assets back into money market funds and short-duration bonds will strengthen accordingly—putting direct pressure on short-term crypto market sentiment.

However, the impact of rate hikes on Bitcoin is not linear. After entering 2023, despite the Fed hiking twice consecutively, Bitcoin rose 21% against the trend, and the actual impact of the final two hikes on prices was already quite limited. This shows that when the hiking path is fully priced in by markets and inflation data shows signs of marginal improvement, rate hikes themselves don't necessarily continue to suppress prices—what truly matters is often the shift in expectations about policy direction, rather than any single hike action. This historical experience provides a reference for observing the potential September hike. If a September hike materializes but is interpreted by markets as the tail end rather than the beginning of a tightening cycle, Bitcoin's drawdown would likely be brief and limited, with markets quickly shifting to expectations of a forthcoming easing cycle.

How will U.S. stocks be affected?

On the U.S. equity side, crypto-related stocks and crypto-linked assets tend to amplify Bitcoin's own volatility. Shares of companies like Coinbase (COIN), Circle (CRCL), and Strategy (MSTR) typically react more violently to rate expectations than spot Bitcoin itself: rising rate hike expectations mean higher risk-free rates, which directly push up the discount rate in equity valuation models, creating particularly acute pressure on growth and high-valuation tech stocks. One of the key supports for the U.S. stock rally in recent years has been valuation expansion driven by rate cut expectations. Once that expectation is reversed, markets must re-price higher costs of capital, making increased index volatility almost inevitable. Notably, several high-weight tech stocks in the S&P 500 and Nasdaq have already seen notable pullbacks. If September rate hike expectations further materialize, valuation pressure on these core heavyweight stocks could transmit to the entire index level.

At the same time, this resurgence in rate hike expectations coincides with the most capital-intensive earnings season for Big Tech. From late July into early August, Google, Microsoft, Meta, Amazon, and Apple reported Q2 results, with market reactions showing clear divergence. The core point of contention: whether capital expenditures can translate into actual revenue. Google Cloud revenue surged 82% year-over-year, its fastest growth ever, but the company raised its full-year capex guidance to a range of $195–205 billion, sending shares down 7%. Meta beat slightly with 28% revenue growth, but raised capex to $130–145 billion, and shares tumbled nearly 9%. Apple fell sharply on weaker-than-expected Q4 revenue guidance compounded by supply chain concerns. Only Microsoft delivered results that satisfied the market—full-year cloud revenue surpassed $100 billion for the first time, and the company cut its FY2027 capex guidance from $190 billion to $175 billion, sending shares up over 15% in a single day, the biggest gain in nearly 18 years. Combined capex across these four companies is approaching $750 billion, and the market's benchmark has shifted from "how much are you willing to spend on AI" to "can this money translate into visible revenue and cash flow."

This divergence means even greater sensitivity heading into September. These giants rely primarily on debt issuance and equity financing to cover cash flow gaps. If September indeed brings a rate hike, rising corporate financing costs would directly compress the marginal returns on their capital expenditure. At that point, the market's tolerance for the "burn cash on AI for growth" narrative could narrow further—companies whose cash flow has already turned negative and lack a compelling growth story could see even more violent stock swings than they did in July.

As for the September FOMC meeting, the more accurate characterization right now is that a rate hike has shifted from a near-excluded tail risk at the start of the year to a mainstream scenario pricing in better than even odds. For crypto asset and related U.S. equity investors, oil price movements, monthly CPI prints, and remarks from Fed officials at venues like the Jackson Hole symposium will all be key windows over the next month for gauging whether rate hike expectations become further entrenched.