Fed Rate Hike: Economist Warns of Possible 50bp Move in December
Economist Jason Schenker says the Federal Reserve could raise interest rates by 50 basis points in December if inflation remains persistent after its September rate hike. He expects the Fed to hold rates at its October meeting, arguing that officials need more evidence of how the September move has affected the economy.
Traders are currently pricing in a 25bp Fed rate hike in December. The latest CPI reading came in above expectations, partly because of higher fuel costs, but Schenker says the data largely predates the September increase and is not enough to justify another move in October. Officials will receive two jobs reports and another CPI report before the December meeting.
Schenker says a 50bp Fed rate hike in December could be followed by a pause early next year. A 25bp increase, by contrast, could leave further tightening in the first quarter more likely. The policy outlook remains dependent on incoming inflation and employment data.
Bearish
The report is conditionally hawkish: Schenker says the Fed could deliver a larger-than-usual 50bp rate increase in December if inflation fails to ease. Higher interest rates generally raise the cost of capital and can reduce appetite for risk assets, including Bitcoin and other cryptocurrencies. If traders increase bets on a larger hike, crypto could face short-term selling pressure, higher volatility and liquidations, particularly if yields and the US dollar rise.
The impact is not certain or necessarily immediate. The 50bp move is a forecast, not a Fed decision, and the article says officials may hold in October while awaiting further inflation and employment data. As in past periods when markets repriced expectations for aggressive Fed tightening, digital assets have often reacted to changes in rate expectations, Treasury yields and the dollar rather than to a single forecast. A cooler CPI reading or weaker jobs data could reduce expectations for a large hike and support a relief rebound. Over the longer term, persistent inflation and continued tightening would likely weigh on liquidity and crypto valuations; a pause after a larger December move could temper that pressure. Overall, the conditional risk of more forceful tightening supports a bearish market classification, while incoming data remain the key catalyst.