Ethereum stalls ahead of Fed decision with 35% probability of rate hike

Ethereum is trading in a narrow range as traders weigh a rare split in expectations for the Federal Reserve's rate decision.

Ether fell 0.13% on the day as the Federal Reserve prepared to announce its rate decision at 2 p.m. ET, with markets assigning an unusually high 35% probability of a quarter-point increase, according to CME FedWatch data. Chair Kevin Warsh's press conference is scheduled for 2:30 p.m. ET.

"The market won't rule out hike risk; neither will we," Bank of America economists said in a research note, noting the Fed has never raised rates since 1994 when the market priced in less than a 60% chance. A move would be unprecedented but could "establish Warsh credibility on independence and inflation," they said.

Bitcoin rose 0.75% to $64,324, recovering some of Tuesday's losses after a volatile 48-hour period that saw it spike to $66,700 before crashing to $62,400. The CoinDesk 20 Index added 0.41% since midnight UTC, with 10 members advancing and 10 declining. XRP gained 1.72% and ADA rose 1.48%, while FET fell 4.60% as AI tokens continued to unwind.

The Fed's decision carries outsized importance beyond the immediate rate move. Bond yields have already broken above key trendlines that defined the shallow pullback in place since 2023, with both the 10-year and two-year Treasury yields establishing an upward trajectory. Oil prices have climbed nearly 20% this month, with Brent crude rising above $89 per barrel and West Texas Intermediate reaching about $84 per barrel, as renewed U.S.-Iran hostilities threaten to push inflation higher after June's relief.

Why the Fed might hold or hike

Consumer price inflation slowed to 3.5% in June from 4.2% in May, driven partly by a short-lived cease-fire that eased gas prices. But with the national average for a gallon of regular gasoline back above $4 and oil prices surging, some economists expect inflation will shoot back up. The Fed typically looks through supply shocks like oil market disruptions, but analysts say leaving rates unchanged could risk the central bank's credibility given Warsh's hardline stance against inflation.

KPMG Economics Chief Economist Diane Swonk expects two dissents if the Fed holds, likely from Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan. Hammack said on LinkedIn she saw "no conflict" in the Fed's mandate, adding "inflation is too high." Logan said in remarks to the Dallas Fed's Houston Branch that "one month of relief is not enough."

What a rate move means for crypto

Derivatives positioning suggests traders are hedging rather than committing. Open interest across crypto held steady near $113 billion over the past 24 hours while volume increased 10% to $205 billion, pointing to steady positioning but slightly higher churn. Bitcoin's 30-day implied volatility remains near recent lows, a sign traders do not expect near-term jitters despite the uncertainty.

In Deribit-listed options, Bitcoin puts at strikes $62,000, $60,000 and $54,000 dominate 24-hour volume rankings, indicating traders are hedging against downside risk. If the Fed raises rates or sounds hawkish, already buoyant bond yields could rise sharply, creating a headwind for risk assets including cryptocurrencies. A dovish outcome that downplays inflation fears could trigger a sharp rally in crypto prices.

This article is for informational purposes only and does not constitute investment advice.