During his speech at Jackson Hole last week, Federal Reserve Chair Jerome Powell signaled potential rate cuts in September. Investors and prediction markets are bullish that a 25 basis point rate cut could come in September, as Powell hinted at “changes to [the Fed’s] policy stance” amid stability in unemployment rates and other labor market measures.
Kalshi traders see a high likelihood that the Fed will cut rates by 25 bps in September, with “yes” priced at 77¢ (77%). Similar sentiment is shared by traders on Polymarket, where a 25 bps rate cut in September is priced at 78¢ (78%).
Meanwhile, cryptocurrency markets dipped ahead of Powell’s speech on Friday, with Bitcoin (BTC) down about 3% that week, falling to $112,000 on Friday. Ethereum (ETH) followed suit, losing about 6% of its value that week, reaching $4,200. The weekend after Powell’s speech, both ETH and BTC rallied, gaining some of their losses back; however, both tokens had dipped again at the start of this week.
Crypto reacts to potential fed rate cuts
Following Powell’s speech on Friday, BTC gained its 3% losses, briefly jumping back to $116,000 over the weekend. ETH was on a more bullish run, gaining over 15% and nearing $5,000 territory.
An open market on Kalshi speculating on the price of Bitcoin saw a surge in trading volume on August 22 and 23, following Powell’s speech and bullish market sentiment. The highest trader consensus predicted that BTC will reach $125,000 by the end of the year, priced at 72¢ (70%). This was followed by predictions of BTC reaching $130,000 priced at 59¢ (60%).
Cryptocurrency markets are notoriously volatile, with prices influenced by a wide range of factors. Increasingly, macroeconomic conditions, such as interest rate decisions and the overall performance of US equities, play a significant role in determining the direction of digital asset values. Actions like Fed rate cuts often boost investor confidence, leading to capital inflows into risk-on assets, such as Bitcoin and Ethereum, Ryan Lee, chief analyst at Bitget Research, explained.
“BTC, seen as ‘digital gold,’ benefits from its fixed supply and inflation-hedge narrative, while ETH gains from increased DeFi and ETF-driven activity. However, short-term volatility may occur if cuts signal economic weakness, though the long-term outlook remains bullish due to heightened risk appetite and market correlations.”
Macro risks like tariffs, inflation and slow job growth linger
Despite heightened positive sentiment, some analysts remain divided on their views regarding how cryptocurrency markets may react to potential Fed cuts.
Bitget’s Lee highlighted that potential rate cuts often act as a bullish driver for digital assets, boosting liquidity and driving investors towards “riskier” assets like BTC and ETH as low-yield bonds become less attractive.
On the other hand, weekly analysis shared by Dean Chen, in-house analyst at Bitunix, pointed towards growing macro tension. On Tuesday, US food industry groups lobbied for tariff exemptions, warning that import costs could drive inflation higher. These pressures, according to Chen, may constrain the Fed’s ability to cut rates, despite heightened expectations of a 25 bps cut.
“The US is entering a phase of policy tug-of-war between ‘rate-cut tailwinds’ and ‘tariff-driven inflation risks.’ If food prices keep climbing, the Fed’s room for easing may be constrained. Investors should closely track upcoming PCE and nonfarm payroll data. While short-term sentiment remains bullish, the medium-term risk is that inflation erodes the benefits of rate cuts.”
Vugar Usi Zade, COO at Bitget, echoed the mixed outlook, pointing to Powell’s data-dependent stance.
“The risk of stagflation, driven by tariff-induced price increases and slower labor force growth, is a red flag that could limit the Fed’s ability to cut rates aggressively, especially with inflation at 2.7% above the 2% target. However, markets may still expect dovish support if growth softens further, particularly after the weak July jobs report, which showed only 73,000 jobs added. This tension suggests a volatile macro environment, with the Fed’s next moves hinging on incoming data.”
