Fed Rate Hike Odds Rise to 66% as Bitcoin Holds Near $78,000

CME FedWatch pricing indicates a 66% probability that the Federal Reserve will raise the federal funds rate by 25 basis points at the September 15‑16 meeting, up from roughly 35% before the Jackson Hole remarks.

Macro backdrop

Fed Chair Kevin Warsh’s speech highlighted “concerning” inflation, citing a Personal Consumption Expenditures (PCE) index of 3.7% year‑over‑year and 4.1% over six months—both well above the 2% target. Energy prices have surged, with Brent crude above $91 per barrel after renewed U.S.–Iran tensions near the Strait of Hormuz.

Bitcoin performance

Bitcoin is trading around $78,000, having gained 25% in August—the strongest monthly gain since November 2024. The rally follows a recovery from a May low near $63,000.

Spot Bitcoin ETF flows

U.S. spot Bitcoin ETFs attracted $3.52 billion of net inflows in August, recording positive flows on 16 of 21 trading days. The funds now hold over $99 billion in assets, with the number of large‑scale asset managers holding ETF positions up 150% year‑over‑year.

Potential impact of a rate hike

A higher federal funds rate raises the risk‑free return on Treasury bills, forcing risk assets to offer higher expected returns. Historically, rate hikes have pressured crypto assets; a 2022 tightening cycle saw Bitcoin fall about 77%.

Even a modest 25‑basis‑point increase could shift portfolio allocations, prompting some model investors to reduce Bitcoin exposure or pause new inflows until the rate path clarifies.

Why the outlook may differ

Proponents argue that spot Bitcoin ETFs provide a mechanical buying floor: when Bitcoin falls below target weights, fund managers rebalance by buying, and when it rises they trim. However, ETF inflows in August represent less than 4% of total assets, and past outflows have exceeded single‑month inflows during market stress.

Additionally, a portion of ETF activity stems from basis‑trade strategies that are sensitive to Treasury yields; rising yields can diminish the attractiveness of these trades, leading to outflows without a change in directional conviction.