For months, the prevailing wisdom on Wall Street was that the Federal Reserve’s next move would be down. Rate cuts were the base case, multiple ones were priced in for 2026, and the only real debate was timing. That narrative is cracking.

The Bank of America Global Fund Manager Survey now shows institutional investors increasingly pricing in the risk that the Fed doesn’t just pause its cutting cycle. They think it might reverse course entirely and hike rates again if inflation picks back up.

The rate-cut dream is fading

The Federal Reserve currently holds its target federal funds rate in a range of 3.50% to 3.75%, with the effective rate hovering around 3.6% to 3.7%. At its most recent meeting, the Fed opted to keep rates steady, pointing to heightened inflation uncertainty and a sluggish labor market as reasons for caution.

None of that screams “emergency.” But the shift in investor sentiment is notable because it represents a meaningful recalibration of expectations.

Where fund managers previously anticipated a glide path toward easier monetary policy, the BofA survey suggests the consensus has moved toward expecting rates to stay at or above current levels for longer. Bank of America economists have suggested the Fed may delay rate cuts and keep policy rates elevated well into 2025.

In English: the era of “higher for longer” isn’t just a catchy phrase anymore. It’s becoming the base case for some of the largest money managers on the planet.

Why inflation is back in the conversation

Here’s the thing. Inflation hasn’t dramatically re-accelerated, at least not yet. But the conditions that could trigger a resurgence haven’t disappeared either. Sticky services inflation, resilient consumer spending, and lingering supply chain adjustments continue to keep the Fed on edge.

The survey results reflect a crowd of professional investors who’ve been burned before. They watched the Fed pivot too early in historical cycles, only to see inflation come roaring back. The memory of 2021 and 2022, when “transitory” became the most mocked word in finance, looms large.

What the BofA survey captures is essentially a hedge. Fund managers aren’t necessarily predicting rate hikes as the most likely outcome. They’re saying the probability of that outcome has risen enough to warrant serious attention. And when institutional investors start repositioning around tail risks, those tail risks have a way of influencing market behavior all on their own.

The Fed itself has been sending mixed signals. Holding rates steady while acknowledging inflation uncertainty is the central banking equivalent of saying “we’re watching.” That ambiguity gives investors just enough room to imagine worst-case scenarios.

What this means for crypto and risk assets

For anyone holding Bitcoin, Ethereum, or other digital assets, this survey isn’t just a Wall Street curiosity. It’s directly relevant to portfolio performance.

BTC and ETH have shown a strong correlation with US real yields and Fed funds futures in recent months. When rate expectations shift hawkishly, meaning markets expect tighter policy, long-duration and risk-on assets tend to suffer. Crypto, for all its claims of being uncorrelated, has behaved very much like a leveraged bet on liquidity conditions.

Think of it like this: when money is cheap and abundant, speculative assets thrive because investors are willing to take bigger swings. When money gets expensive and scarce, those same investors pull back to safer ground. The prospect of renewed rate hikes, even as a risk rather than a certainty, tightens the psychological screws on anyone allocating to volatile assets.

The practical effect is already visible. Crypto markets have become increasingly reactive to macro data releases, FOMC meeting minutes, and survey results like this one from Bank of America. A single hawkish data point can trigger meaningful sell-offs in digital assets, while dovish surprises tend to fuel rallies. The tail is wagging the dog, and the tail is the Fed.

For investors trying to navigate this environment, the key variable to watch isn’t any single inflation print or jobs report. It’s the trajectory of expectations. If the BofA survey is an early indicator of a broader shift, and fund manager surveys often are, then the market is collectively raising its estimate of the probability that rates stay high or go higher. That repricing tends to happen gradually, then all at once.

The competitive landscape among risk assets also matters here. If Treasury yields remain elevated because the market expects the Fed to hold firm or tighten further, the opportunity cost of holding non-yielding assets like Bitcoin increases. Why take the volatility of crypto when you can earn 3.6% or more risk-free? That’s the question more allocators will be asking if this trend continues.

There’s also a second-order effect worth considering. Higher rate expectations strengthen the dollar, which historically puts downward pressure on Bitcoin priced in USD. A stronger dollar combined with tighter liquidity is essentially a double headwind for crypto valuations.

The risk, of course, cuts both ways. If inflation does cool meaningfully and the Fed signals genuine readiness to cut, the snapback in risk assets could be sharp. But the BofA survey suggests that’s not what the smart money is betting on right now. For crypto holders, that’s a data point worth taking seriously, even if the final outcome remains uncertain.