Fed Rate Cut Expectations Fuel Bitcoin Optimism, Yet Challenges Could Emerge

As the Federal Reserve readies a widely anticipated 25-basis-point rate cut on Sept. 17, bitcoin traders are betting that lower short-term rates will boost risk assets. Fed funds futures indicate the central bank could reduce rates to around 3% over the next year.

Short-Term vs. Long-Term Yields
While the expected Fed move may suppress short-term Treasury yields, longer-term rates could remain elevated due to fiscal pressures and persistent inflation. The U.S. government plans to issue more Treasuries to fund extended tax cuts and increased defense spending, potentially adding over $2.4 trillion to deficits over the next decade. Analysts warn that this supply could keep long-term yields high, partially offsetting the bullish impact of Fed easing.

Inflation Adds Uncertainty
Recent data show inflation creeping upward, with the CPI rising 0.4% in August to 2.9% year-over-year. This increase could make the Fed cautious about further cuts, keeping long-term yields elevated and limiting the potential boost to risk assets.

Market Expectations
The 10-year Treasury yield has already dropped to 4%, reflecting market pricing of the upcoming Fed cuts. Experts caution that yields could rebound if inflation or fiscal pressures intensify, mirroring trends seen after the 2024 rate reductions.

Implications for Bitcoin
Bitcoin surged in late 2024 despite rising long-term yields, fueled by regulatory optimism and corporate adoption. Today, those catalysts are weaker, meaning rising or sticky long-term yields could weigh on BTC even as traders bet on near-term rate cuts.

The Fed’s upcoming move will be closely watched, as the interplay between monetary policy, fiscal spending, and Treasury yields will likely shape both bitcoin and broader risk assets in the months ahead.