The Federal Reserve increased its benchmark interest rate by 25 basis points on Wednesday, moving the federal funds target range to 3.75% to 4%. This marked its first rate hike since 2023 and was supported unanimously by all members of the Federal Open Market Committee.
Market expectations and reaction
Traders had strongly anticipated the decision, with CME’s FedWatch tool indicating a 93% probability of a hike ahead of the announcement—up sharply from less than 50% a month ago. Major banks, including Barclays, Citigroup, JPMorgan, Morgan Stanley, and UBS, had predicted a total of 50 basis points of tightening by the end of the year. In contrast, Bank of America, Deutsche Bank, and RBC projected a cumulative 75 basis points.
The policy announcement initially left Bitcoin flat, trading between $75,000 and $75,800. Minutes later, Bitcoin surged to $76,000, outpacing the broader crypto market, which lost 2.18% on the day. In the lead-up to the decision, Bitcoin had hovered near $75,200, well below its September high near $82,000 and still feeling the impact of the prior day’s drop after the Clarity Act failed a Senate cloture vote.
In its official statement, the Federal Reserve Committee highlighted that the economy was “expanding at a solid pace” and job gains had “kept pace with the workforce,” but inflation remains elevated. The Committee emphasized that raising rates would help achieve a “timelier return” to its 2% inflation target.
Support levels for Bitcoin had been monitored closely by analysts, who identified a support band between $73,500 and $75,600, with any daily close below this area potentially signaling a drop toward $71,000 or even $66,900 based on technical models.
The Crypto Fear & Greed Index, which hit extreme greed just weeks ago, has since returned to more neutral ground, falling from 69 to 51 points overnight.
Economic drivers and inflation data
Momentum for the hike gathered rapidly after new U.S. inflation data was published last week. According to the National Association of Manufacturers (NAM), the Producer Price Index (PPI) increased 5.4% year-on-year in August, compared to 4.8% in July. Goods prices alone jumped 1.1% month-over-month, with rising energy costs responsible for the majority of the increase.
A day later, the Consumer Price Index (CPI) reported a 3.4% annual gain, with the monthly increase accelerating to 0.4% from 0.1%. Gasoline accounted for one third of that monthly change, while core inflation—the measure that excludes food and energy—rose to 0.3% on the month from 0.2% previously.
These dual reports convinced banks that had planned on holding rates steady, such as Goldman Sachs and Piper Sandler, to shift their forecasts and expect a raise. Rising oil prices, recently passing $100 per barrel for the first time since July amid ongoing tension with Iran, further increased pressure on the Federal Reserve to act quickly.
Mini dictionary: Producer Price Index (PPI) – An economic indicator that measures the average change in prices received by domestic producers for their output, serving as a key signal for inflation trends.
Political implications and Fed leadership
For newly confirmed Fed Chair Warsh, who took office in May, this rate hike was only his third meeting. The move ran counter to calls from Donald Trump, who nominated him with a preference for rate cuts. Trump stated last year, “I’m going to put somebody that wants to cut rates,” before appointing Warsh and urging him to remain independent.
Senator Elizabeth Warren, a vocal critic of Warsh’s independence, told CNN that the administration’s own trade and foreign policy decisions had backed the Fed chair into a difficult position. She also warned that any rate hike would translate into higher costs for ordinary Americans through pricier credit cards and mortgages, regardless of Warsh’s intent.
In the two weeks leading up to the FOMC decision, Trump, Vice President JD Vance, and Treasury Secretary Scott Bessent had all publicly advocated for rate cuts. Trump even threatened to end trade with countries running trade surpluses with the U.S. if policy rates did not come down.
Outlook for the crypto market
Despite volatility around the announcement, Bitcoin ultimately held above the lower end of its observed support band. The next Federal Reserve meetings are scheduled for October 27-28 and December 8-9, with investors now watching closely to see whether this hike will be the final move of the year or the start of additional tightening cycles.
