Crypto Market in Focus as Banks Raise US PCE Forecasts Ahead of Fed Rate Hike Decision

The crypto market is awaiting the Fed rate decision to evaluate whether the central bank is considering a hike at its September gathering. Notably, the Wall Street banks have fueled concerns, raising their forecasts for the upcoming US PCE inflation data, which has further cemented bets on a potential Fed rate hike this month.

Meanwhile, the market is already betting on a hawkish stance by the US central bank with its monetary policy plans. So, here we explore what the Wall Street banks’ predictions are on US inflation and the potential move of the US Federal Reserve.

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Wall Street Banks Turn Cautious on US PCE Inflation

Wall Street banks have lifted their forecasts for August core PCE inflation, sparking discussions among crypto market traders. The revisions came after the latest US Consumer Price Index (CPI) data, which came in line with Wall Street expectations.

Amid this, Barclays now expects monthly US core PCE inflation near 0.25%, up from its previous expectations of 0.22%. Goldman Sachs sees the figure at roughly 0.26%, as compared to its prior expectations of 0.24%, while Nomura raised its projection from 0.245% to about 0.278%.

Meanwhile, Bank of America now expects a 0.30% monthly increase in August, up from its pre-CPI forecast of 0.26%. On the other hand, TD Securities has a higher estimate at 0.32% from its prior forecast of 0.24%. Mizuho sees an even wider range based on different calculation methods.

These forecasts point to a common concern that inflation could remain sticky despite earlier signs of cooling. That could make the Fed more cautious about easing financial conditions, impacting the crypto market and other risk-bet assets.

The core PCE index holds particular importance for the central bank as it tracks underlying inflation while excluding volatile food and energy prices. Stronger readings could therefore complicate the Fed’s policy choices, raising bets over a potential Fed rate hike in September.

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Fed Rate Hike Bets Pressure Crypto Market

Crypto market traders are closely watching these inflation expectations, as higher policy rates generally create tougher conditions for risk assets. Bitcoin and other cryptocurrencies could face additional volatility if the Fed considers a rate hike in September or delivers a hawkish outlook.

Meanwhile, crypto market analyst Ted Pillows recently pointed to a broader shift among major financial institutions. He said banks including Bank of America, Barclays, Citigroup, Deutsche Bank, Goldman Sachs, Piper Sandler, TD Securities and Wells Fargo expect a September Fed rate hike.

According to the CME FedWatch Tool, the odds of a potential 25 bps rate hike in September now sit at 87.3%. Simultaneously, prediction markets data also showed that a Fed rate hike odds in September is at 80% now. Besides, the European Central Bank (ECB) also announced a 25 bps rate hike recently to curb inflation, which has further spooked crypto market traders.

Considering that, it appears that the market is treading cautiously ahead of the Fed’s next week gathering. On the other hand, the recent US PPI reading, which has slightly exceeded the market forecast, has further forced traders to stay on the sidelines amid the topsy-turvy scenario in the broader market.

Meanwhile, to capitalize on these shifting macroeconomic forecasts, retail traders are turning to the best crypto prediction markets to trade on-chain contracts representing interest rate outcomes.