The Federal Reserve increased its federal funds target rate by 25 basis points, bringing it to a range of 3.75% to 4%. Despite the rate hike and the recent failure of the CLARITY Act in the Senate, Bitcoin‘s price rose significantly, moving from below $76,000 to above $86,000. S&P 500 futures, meanwhile, stabilized following a brief period of losses.
Tom Lee highlights peak hawkishness
Tom Lee, head of research and Chief Investment Officer at Fundstrat Global Advisors, commented that the Federal Reserve may have reached the height of its hawkish stance on inflation and interest rates. He anticipates that the central bank could soon adopt a softer tone, especially if there are changes in the way inflation is calculated.
Lee asserts that, “the Fed cannot get much more hawkish from here, and upcoming data could give officials room to walk back their stance.”
The Federal Reserve is reportedly considering adjustments to its preferred inflation gauge, which could suggest that inflation is lower than previously estimated. Such a shift might increase the appeal of cryptocurrencies like Bitcoin to investors seeking alternatives to traditional assets.
Market and institutional reactions
Goldman Sachs analysts have noted that the S&P 500 typically declines by around 2% in the three months following a rate hike. Additionally, Yardeni Research recently lowered its market targets after 10-year Treasury yields surpassed 5%.
| Event | Immediate Impact |
|---|---|
| Fed rate hike to 4% | Bitcoin moves above $86,000 |
| 10-year Treasury yield above 5% | Yardeni lowers market targets |
| S&P 500 after rate hike* | Historically falls ~2% in three months |
Longer-term US Treasury yields are pressuring venture investment debt, stablecoin collateral, and increasing the cost of decentralized finance lending. The regulatory landscape remains uncertain, as the failure to pass the CLARITY Act has left the SEC and CFTC without defined authority over digital assets. Companies continue to wait for regulatory clarity concerning staking, custody, and product design.
Mini dictionary: CLARITY Act, a bipartisan legislative proposal seeking clearer regulatory definitions for crypto assets and industry participants in the US.
Crypto optimism grows
Blake Skadron, CEO of iTrustCapital, a platform enabling cryptocurrency investments in retirement accounts, said that the so-called crypto winter may be nearing an end as the company actively begins to redeploy idle client funds.
The upcoming core PCE revision and signals from Glassnode and SoSoValue will help indicate whether the movement in Bitcoin is driven by genuine demand or short covering.
Historically, when the Federal Reserve changes from a hawkish to a more dovish policy, high beta assets such as Ethereum and Solana have often rallied. However, previous patterns do not guarantee future results. Investors and institutions are now focusing on the September 30 core PCE inflation revision and statements from Federal Reserve officials that may indicate a shift toward a more dovish outlook.
Market participants remain attentive to on-chain activity and exchange-traded fund flows to determine whether Bitcoin’s surge above $86,000 reflects organic investment or short-term trading activity.
If the Federal Reserve’s method change brings core PCE inflation closer to 3% after the most recent rate hike, it could reinforce the view that tightening has reached its peak. This scenario might revive institutional participation in Bitcoin, Layer 1 networks, and blockchain development on a sustainable basis.
