Fed Spooks Nobody: 25 bps Hike In, Bitcoin Out 📈

The U.S. Federal Reserve lifted its benchmark federal funds rate by 25 basis points on Wednesday, raising the target range to 3.75%-4.00% from 3.50%-3.75% in its first rate hike since July 2023. The decision was unanimous, with all 12 voting members of the Federal Open Market Committee backing the move, and the Committee's "dots" signal one additional hike expected in 2026. Traders had priced in a 93% probability of a hike ahead of the announcement, according to CME's FedWatch tool, up from under 50% a month earlier.

In its policy statement, the FOMC said "economic activity is expanding at a solid pace" and that "inflation remains elevated," adding that Wednesday's action would support "a timelier return to the Committee's 2 percent goal." The Fed had held rates steady at 3.50%-3.75% in July, but that decision passed by just a 9-3 vote, with three policymakers already pushing for a hike then. The case for tightening hardened after last week's inflation prints: the Producer Price Index rose 5.4% year-over-year in August, accelerating from 4.8% in July, with goods prices jumping 1.1% on the month, more than three-quarters of that gain from rising energy costs, according to the National Association of Manufacturers. A day later, the Consumer Price Index rose 3.4% annually, the same pace as July, but the monthly gain accelerated to 0.4% from 0.1%, with gasoline responsible for a third of the increase, while core inflation picked up to 0.3% monthly from 0.2%.

Oil trading above $100 a barrel for the first time since July, tied to fallout from the conflict with Iran, added further pressure. Goldman Sachs and Piper Sandler, which had previously projected the Fed would stand pat, switched to expecting a hike after the inflation reports, Reuters reported. A Wall Street Journal survey published this week found that nearly every major bank expected a hike, with Barclays, Citigroup, JPMorgan, Morgan Stanley and UBS forecasting 50 basis points of total tightening by year-end, while Bank of America, Deutsche Bank and RBC had called for 75 basis points.

Wednesday's meeting was only Fed Chair Kevin Warsh's third since being confirmed in May. In its statement, the Committee said job gains had "kept pace with the workforce" and noted that "while uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient." Warsh's post-meeting press conference was scheduled for 2:30 pm ET.

Bitcoin traded volatile around the announcement, hovering near $75,700 before the decision, swinging between $75,000 and $75,800 in the minutes before and after, then spiking to $76,000 and continuing to rise. $BTC was trading just below the $76,000 level shortly after the decision, according to TradingView data. U.S. stocks held modestly higher and bond yields were slightly lower.