Why traders expect a rate increase and its effects on bitcoin

Market Shifts and Economic Concerns

The figure 180 doesn’t quite capture the recent shifts in how the market views central bank monetary policies.

Just a few weeks back, our predictions indicated that the Federal Reserve would be cutting rates multiple times in 2026. Yet now, there’s a noticeable move towards the anticipation of rate hikes happening this year. Current data suggests there’s nearly a 30% chance the federal funds rate may increase beyond the present 3.50% to 3.75% range by year-end. On the flip side, the likelihood of interest rates dropping has plummeted to just 2.9%.

This change mainly stems from renewed worries about inflation, particularly surrounding energy markets. Since Middle East tensions escalated at the end of February, Brent crude oil prices jumped from about $70 per barrel to around $111 now. Consequently, long-term rates on U.S. Treasury bonds have seen a significant rise, with the 10-year Treasury yield moving up from under 4% a few weeks ago to 4.40% today.

The Crypto Is Macro Now Newsletter pointed out that “food and energy prices have tragically increased and are likely to stay elevated for some time, at least until the transportation disruptions in the Middle East are resolved.” They added, “Even if a peace agreement were reached tomorrow (which seems improbable), it would still take months at best to stabilize.”

Inflation was already above the Fed’s 2% target prior to the rise in oil prices. Core inflation was at 2.5% year-on-year in February, failing to dip below the 2% mark since April 2021.

Expectations for inflation in the long term also hover above the target, recorded at 2.5% and 2.3% for five and ten years, respectively. This implies that the market anticipates inflation will exceed the Federal Reserve’s objectives for a while.

According to Macro Now, “Since the U.S. is a net exporter, cryptocurrencies along with the overall U.S. economy will likely benefit from elevated energy prices.” They mentioned a forthcoming increase in military spending to replenish equipment, which could further stimulate the economy. This dynamic might help stave off a significant downturn in GDP.

Bitcoin’s Performance Amidst Market Changes

Bitcoin is currently fluctuating between $65,000 and $70,000, showing a stable trend since the onset of the Iran conflict.

On the other hand, gold has plummeted about 20% since the U.S. intervention began, and the Nasdaq has officially entered correction territory, down more than 10% from its highs in 2026.

But looking back, gold was in the middle of a remarkable rally in early March, more than doubling year-over-year. The Nasdaq itself has surged around 50% from its low in April 2025, nearing an all-time high. However, Bitcoin has dropped around 50% since its peak in early October 2025.