Fed Policy Outlook Clouded By Inflation Surprise

While the majority anticipated a Fed rate cut in September, a key indicator casts doubt. The latest Producer Price Index (PPI) release rekindles inflation fears and cools hopes for monetary easing. This subtle but meaningful reversal reshuffles the deck in a context where Fed policy dictates the rhythm of risky assets, and more than ever, that of the crypto market.

The Momentum of a Monetary Pivot Questioned

Until recently, a rate cut in September seemed almost certain, as Goldman Sachs had anticipated. The CME futures market (Chicago Mercantile Exchange), via its FedWatch tool, still assigned a 96 % probability to a key rate cut to 4.00–4.25 %.

However, the tide has shifted. Following the July PPI release, this probability slipped to 92.8 %. A modest correction in appearance, but revealing a change in perception. The market is beginning to doubt. And these doubts also extend to other prediction platforms.

On Kalshi, a 25 basis point cut in September remains the most likely scenario with 76 %, but the status quo rate rises to 21 %, signaling growing caution.

Market platforms reflect this shift in expectations numerically and without ambiguity :

• CME FedWatch Tool : 92.8 % probability of a cut to 4.00–4.25 % (compared to 96 % previously) and 7.2 % probability of rate hold ;

• Kalshi : 76 % of bettors expect a 25 basis point cut, 21 % foresee a status quo, and 4 % bet on a larger cut (>25 bps);

• Polymarket : 72 % probability of a 25 basis point cut, 23 % for status quo, 5 % for a 50 bps cut, and 1 % for a hike.

These gaps, although narrow, reflect a slow but tangible reconfiguration of expectations. The PPI release served as a reminder that inflation is not under control, complicating the argument for a rapid monetary pivot.

Even if the majority of the market still leans towards easing, operators adopt a more measured tone, reflecting an increased awareness of latent macroeconomic risks.

Inflation Resurges and Clouds Prospects

The inflection observed on Polymarket illustrates the magnitude of the situation. Indeed, the probability of a monetary status quo in September now reaches 23 %, a notably higher level than at the beginning of the month.

At the same time, the scenario of a 25 basis point cut loses some points and falls to 72 %, while the scenario of a more marked reduction (50 basis points) remains marginal at 5 %. If the Fed adopts a data-dependent approach, as it has repeated for several months, the issue becomes clear: each macroeconomic indicator, inflation, employment, growth, is now likely to reshuffle the cards.

This nervousness results from an indicator, the PPI, which, although less publicized than the CPI, is watched for its leading signals on inflationary pressures. An unexpected rise at this level fuels the scenario of more entrenched inflation than expected.

It places the Fed in a delicate position : keep rates unchanged despite slowing risks, or cut them while risking fueling a new wave of price increases. No scenario is simple, and it is precisely this complexity that is reflected in the current volatility of monetary expectations.

In this suspended monetary environment, bitcoin does not escape the turbulence. Long considered a safe haven against inflation, the asset has progressively adjusted to the pace of rate policies. The more rate cut expectations retreat, the more flows to cryptos slow down.

The current uncertainty about the Fed’s trajectory thus fuels latent volatility in the crypto market, hindering the bullish momentum observed in recent weeks. Operators remain on the lookout for a clear monetary signal before repositioning their strategies.

In the longer term, this uncertainty could have broader consequences on markets, notably crypto markets. A hesitant Fed, perceived as less predictable, could increase volatility on bitcoin and altcoins, already sensitive to rate movements. Upcoming CPI releases, employment figures, and speeches from FOMC members will therefore be decisive.