Fed interest rate dilemma: JPMorgan predicts rate hikes, crypto circle's rate cut dream shattered

The cryptocurrency market once hoped for a loosening of Fed interest rates, but JPMorgan Chase poured cold water on those expectations. This leading global investment bank predicts that the Federal Reserve will keep rates unchanged this year and will start raising rates in Q3 2027, sharply contrasting with the market consensus of rate cuts. For the crypto community, which has long bet on rate cuts, this is undoubtedly a heavy blow.

Rate Hike Expectations vs. Rate Cut Bets: Why Is the Market’s Judgment So Divergent?

According to Reuters, JPMorgan Chase believes the Fed will keep the federal funds rate in the 3.5% to 3.75% range for now, with no adjustments expected, and that the first rate hike may not occur until Q3 2027, with a 25 basis point increase (1/4%) each time.

However, the CME FedWatch tool paints a completely different picture—traders are heavily betting on at least two rate cuts this year, each by 1/4%. Analysts in the crypto community are generally optimistic about rate cuts, believing that lower borrowing costs will boost market risk appetite and benefit risk assets like Bitcoin. Analyst Lukman Otunuga pointed out that Bitcoin could rebound in the first half of 2026 due to supply contraction and expectations of rate cuts.

Behind this optimistic outlook lies market anticipation for the new Fed chair. Current Chair Powell’s term ends this May, and the market generally expects his successor to adopt a more dovish stance, favoring a more accommodative policy than Powell.

Employment Resilience and Inflation Anxiety: The Dilemma in Fed Rate Decisions

JPMorgan Chase’s rate hike forecast is not unfounded. It aligns closely with the recent technical patterns of the 10-year U.S. Treasury yield. According to their analysis, as the global asset pricing benchmark, the U.S. Treasury yield could challenge the 6% high within the next year (currently around 4.18%). If this materializes, it would put substantial pressure on overvalued assets and risky investments.

The core driver of this expectation is the extraordinary resilience of the U.S. labor market. The latest employment data from December showed the unemployment rate unexpectedly falling to 4.4%, indicating a still-tight labor market. This robust economic fundamental has already prompted investment banks like Goldman Sachs and Barclays to revise their rate cut forecasts, pushing the timing of policy shifts from March and June to September and December.

Variables in Policy Shift: The Tug-of-War Between Inflation and Employment

It’s worth noting that JPMorgan analysts openly admit that the situation is not yet settled. If there are clear signs of labor market weakening or a significant decline in inflation, the Fed could still adjust its policy later this year. However, the current strength of the U.S. employment market makes such a scenario unlikely in the near term.

The future direction of Fed interest rates will depend on the ongoing tug-of-war between inflation and employment. Supported by strong employment data, the Fed has even more reason to maintain a tightening stance, which explains why JPMorgan’s forecast diverges so significantly from mainstream market views.