As the Federal Reserve prepares for a widely expected 25-basis-point rate cut on Sept. 17, bitcoin traders are betting that lower short-term rates will support risk assets. Fed funds futures indicate the central bank could reduce rates to roughly 3% within the next 12 months.
Long-Term Yields May Remain Elevated
While short-term yields could fall, long-term Treasury rates may stay high due to fiscal pressures and persistent inflation. The U.S. government plans to issue additional Treasuries to fund extended tax cuts and increased defense spending, potentially adding over $2.4 trillion to deficits in the next decade. Analysts warn this supply could push long-term yields higher, counteracting the bullish effects of Fed easing.
Inflation Adds Complexity
Recent data show U.S. inflation creeping up, with CPI rising 0.4% in August to 2.9% year-over-year. Elevated inflation could make the Fed cautious about cutting rates further, keeping long-term yields from dropping substantially.
Market Already Prices in Easing
The 10-year Treasury yield recently fell to 4%, down more than 60 basis points from May highs, reflecting expectations of Fed cuts. Experts caution that yields could rebound if inflation or fiscal concerns intensify, echoing the pattern seen after the 2024 rate cuts.
Implications for Bitcoin
Bitcoin rallied sharply in late 2024 despite rising long-term yields, supported by regulatory optimism and corporate adoption. Today, with those catalysts weaker, rising or sticky long-term yields could limit BTC’s upside even as short-term excitement grows ahead of the Fed meeting.
Investors are watching closely: the interplay between Fed policy, fiscal spending, and Treasury yields will likely dictate bitcoin’s near-term trajectory and broader risk sentiment.
