Why the Fed may not raise interest rates and what this means for Bitcoin

The Federal Reserve's keeping interest rates unchanged on September 16 may be a "dovish surprise", boosting Bitcoin towards US$80,000.

If the Federal Reserve chooses to keep interest rates unchanged at the interest-rate meeting on September 16, this will become an unexpected "dovish surprise" in the market and is expected to push Bitcoin prices towards the US$80,000 mark. Current market pricing shows that the probability of raising interest rates is about 85%, so the result of suspending interest rates is not fully included in the current price. Weak employment data and rising long-term unemployment provide substantial reasons for the Fed to pause interest rates.

Bitcoin is currently stabilizing at support at US$76,569 and is testing the trend line that has repeatedly suppressed every rally since early September. The key factor that can lead Bitcoin to the next round of gains is what the market has not yet expected: the Federal Reserve decided not to adjust interest rates on September 16. The futures market gives a 25 basis point rate increase in the quarter as high as 85% probability (as of September 12, the CME FedWatch tool showed the probability at 85.5%). Therefore, if there is a suspension of interest rate hikes, it will form a sharp dovish contrast with the current pricing.

On Monday, Bitcoin was trading close to US$78,600, an intraday increase of about 2.3%, and the K-line was still in trading that day. Prices are moving closer to the downtrend line that has rejected all attempts to rise since early September. If we can hold this position on Wednesday, prices are expected to break through the trend line and challenge the $80,000 resistance above.

Walsh's Jackson Hole speech reverses expectations of "stay unchanged" from 70% to 85% of "rate hikes"

Six weeks ago, mainstream market expectations were exactly the opposite. A short-than-expected July jobs report showed that the U.S. economy was losing jobs, pushing the odds of keeping interest rates unchanged in September to 60%, and the market is also forecast to tilt in this direction. However, Federal Reserve Chairman Kevin Walsh warned at the Annual Meeting of Global Central Banks in Jackson Hole that inflation has not slowed and recent readings are worrying. He pointed out that the 12-month core personal consumption expenditure (PCE) reading was 3.7%, and the six-month annualized growth rate was 4.1%, both well above the 2% target. This hawkish tendency already exists within the committee. At the July meeting, three FOMC members voted against it, arguing that the Fed should raise interest rates instead of leaving rates unchanged at 3.50%-3.75%. Barclays now expects to raise interest rates twice this year, in September and December.

Why the economic situation in 2001 and 2007 seemed healthier than the current situation faced by the Federal Reserve

Although the data still leaves the Fed with room to wait, the reasons for waiting are stronger than the ostensible odds imply. Before the recessions of 2001 and 2007, the labor market was strong and inflation was higher than current levels, but recessions still occurred and inflation fell sharply once recessions began. The current situation looks weaker in almost every way. Long-term unemployment is climbing, fewer new jobs are created, and overall inflation is below its pre-two previous recessions (the core PCE excluding food and energy is the main exception). If the recession can start from a more solid foundation than currently, raising interest rates at a time when labor data is already pointing to a slowdown could exacerbate the slowdown. This is the logic used by cautious FOMC members to justify a moratorium on interest rate hikes.

Of course, the above views are analysis rather than established facts, and the other party's arguments also carry weight. The argument that the labor market seemed healthy before past recessions is a double-edged sword, because it also means that labor intensity has a limited indication of subsequent trends. Walsh and hawks take this view, who value stubborn inflation more than growth risks. A dot chart to be released Wednesday will show the final position within the committee.

Period Pre-recession situation Labor market Inflation Results 2001 Pre-recession was very strong, Recruitment is solid Above current levels Recession, inflation falls 2007 Strong before the recession , but gradually cooling down Above current levels Recession occurs, inflation collapses 2026
(Current) The Federal Reserve faces the current situation Weak recruitment, Long-term unemployment rate rises Overall inflation is low, core PCE is high Interest rate hikes are weighted, and market pricing is 85% for interest rate hikes

Why the impact of keeping interest rates unchanged will be greater than everyone's expected interest rate hikes

Market sentiment has not yet been taken into account by any prudent factors. CoinMarketCap's Crypto Fear and Greed Index is at 68, firmly in the greedy area, indicating that positions have been biased towards risky assets. Because of this, the unexpected direction is more important than the decision itself. Since the interest rate hike has been priced at 85%, a separate interest rate hike may have been absorbed by the market and triggered a limited response without more subsequent tightening signals. The real risk lies in the guidance: If a rate hike is accompanied by a hawkish dot chart pointing to another rate hike in December, prices will still be pressured to test bottom support of $76,569. Conversely, keeping interest rates unchanged will have the opposite effect. Compared to the 85% pricing, this will be seen as a dovish surprise. In the hours after the decision is made, dovish surprises can often boost risky assets, which is the clearest path to break back through the trend line in the short term and move towards $80,000.

Bottom supports and blocks the trend line towards US$80,000

The rebound started at support near $76,550. The intraday low hit $76,388. After briefly falling below the line, buyers quickly regained lost ground and left a lower shadow line-the thin tail below the physical K-line, indicating that sellers had pushed prices down, but pushed them back before the close. This is a strong demand signal in the region. Above is a downtrend line that has peaked three times since its September high, meaning that the same downtrend line has thwarted independent rallies three times, confirming its status as an effective resistance level rather than noise. The current K-line is testing this trend line in real time. The key lies in the daily close, that is, the settlement position of the K-line at the end of the trading day, because the weight of the closing price breaking through the trend line is much greater than the instantaneous intraday penetration. If a clear breakthrough can be achieved, the US$80,000 range can be entered into range.

The round number barrier of $80,000 is a barrier that must be overcome. It is both a psychological attraction and a structural ceiling, rejecting price increases twice during the May decline and September rally. The annual high of $82,855 set in the spring forms the top of the range. On the downside, a close below $76,569 would reactivate the $62,385 -66,501 range, the previous summer consolidation zone, which would be the next area where buyers last defended.

• $82,855: Annual High, Range Top
• $80,000: Psychological/Structural Resistance Level
• Downtrend Line: Immediate Resistance Level
• ~$78,600: Current price
• US$76,569:Bottom support, daily closing must hold
• US$62,385 -66,501: If the support level breaks below, the next demand area

The three interpretation scenarios of the Federal Reserve's decision on Bitcoin on Wednesday

decisions will be announced at 2:00 pm on September 16, and the economic summary forecast and dot chart will be released at the same time. Three scenarios may arise after that. The expected rate increase is factored into prices, so unless forecast signals indicate more tightening measures in the future, a simple 25 basis point rate increase may cause only a limited response from Bitcoin. Unexpectedly leaving interest rates unchanged would be a dovish shock to the 85% pricing and the clearest opportunity to trigger a hit on the US$80,000 target in the near term. If the rate hike is combined with the hawkish dot chart pointing to a December rate hike, it will put the greatest pressure on the bottom support of $76,569. The 2-year Treasury yield most closely tracks short-term interest rate expectations and provides quick market feedback on the interpretation of the statement.

The path after Wednesday has more weight than a single decision. Barclays Bank's forecast for a second rate hike in December, and Walsh's statement that the de-inflation process is not yet complete, depict a tightening tendency that even if rates are left unchanged in September, will only be alleviated rather than eliminated. Part of the inflationary stickiness stems from high energy prices associated with the U.S. -Iran conflict, which is a supply-side pressure that can only be indirectly affected by interest rate policies. For Bitcoin, this means that December's dot chart (not just this week's decisions) is the key indicator worth focusing on after Wednesday.