Bitcoin may be underpricing higher-for-longer Fed risk, Bitget Wallet analyst says

Bitcoin could face renewed volatility around the September Consumer Price Index report if inflation proves more persistent than markets expect, according to Lacie Zhang, research analyst at Bitget Wallet. She said investors may be underestimating the risk of sticky core prices keeping the Fed on a higher-for-longer path.

The largest crypto asset traded near $83,500 ahead of Wednesday’s data release, due in less than 30 hours at the time of writing.

A hotter-than-expected core reading or another rise in Treasury yields could force markets to reassess the outlook for interest rates, Zhang said in a Wednesday note.

“Consensus is for headline CPI of roughly 0.5%–0.6% month-on-month, or 3.6%–3.7% year-on-year, with core around 0.2% month-on-month and 2.4%–2.5% year-on-year. Markets currently put the probability of an October hold near 77%, but a hotter core print or renewed pressure on Treasury yields could trigger a sharper repricing than is currently reflected,” Zhang noted.

While the odds of an October rate hold were around 77%, traders were increasingly pricing in another hike in December after the Fed raised rates for the first time in three years last month.

Headline CPI is expected to rise 0.6% month-on-month and 3.6% annually, while core CPI is forecast at 0.2% monthly and 2.5% annually. Higher oil prices could add to inflationary pressure and push the headline figure above expectations, moving it further from the Fed’s 2% target.

The analyst said the market’s next direction will depend on the core CPI result, changes in expectations for potential rate hikes in December, ETF flows and institutional buying.

“Bulls would regain clearer control if core inflation comes in at or below roughly 0.2% month-on-month, easing rate-hike expectations, alongside a sustained break above $84,500–$85,000 on solid volume and renewed inflows,” Zhang added.