Breaking! Market sentiment reversed overnight: Fed "rate hike" shifts from taboo to option, will $BTC's macro narrative need a rewrite?

A few weeks ago, if someone asked whether the Federal Reserve would raise interest rates next, it was mostly considered a joke. But now, that’s no longer a joke. Geopolitical conflicts pushing up oil prices, fears of inflation reigniting, and traders in the interest rate derivatives market are now betting real money on the possibility of a rate hike. Data shows that the market now estimates about a 25% chance of a rate increase this year.

This shift in expectations is like a giant stone thrown into a calm lake. It directly breaks the market’s linear fantasy that the Fed will keep cutting rates, injecting huge uncertainty into the future monetary policy path. This uncertainty is what bonds and stock markets dislike most, and it will naturally spill over into crypto assets. As the Fed prepares to hold a meeting, everyone’s eyes will focus on Powell’s every word, searching for any clues about a potential shift in interest rates.

Oil prices are the spark that ignited all this. Market analysis indicates that soaring oil prices could push the Fed’s most closely watched inflation indicator—the Personal Consumption Expenditures Price Index—to an annual rate of 3.5% this summer. High Frequency Economics Chief Economist Carl Weinberg has publicly called on the Fed to consider a rate hike at this meeting. He believes the central bank’s duty is to prevent the worst-case scenario—runaway inflation.

However, this is not the consensus. Most economists still expect the Fed to hold steady and adopt a wait-and-see approach. Former Dallas Fed President Robert Kaplan advised patience, suggesting that by the end of March, the situation could look entirely different. Former senior Fed official Vincent Reinhart also pointed out that most within the Fed lean toward easing rather than tightening, and Middle East events are just more reasons to wait.

Deutsche Bank’s Matthew Luzzetti added a key constraint: a rate hike depends on the labor market not only rebounding but also strengthening. The reality is that over the past three months, the US has added only about 6,000 jobs per month on average, a rather weak figure.

Therefore, the core of this meeting may not be about action, but about signals. Market observers will scrutinize the Fed’s statements and Powell’s speeches to see if their language shifts from “cutting rates” to being open to “raising rates.” There is a fundamental disagreement: the Fed’s traditional approach is to “look through” temporary oil price shocks. But given the stubborn high inflation since 2021, officials are likely deeply divided on whether they can still follow that script.

Ultimately, policymakers may send a conditional signal: they have the tools and are prepared to use them if energy shocks evolve into a trend of inflation. This is a deterrence, not an immediate action declaration. But for markets like $BTC and $ETH, which rely heavily on liquidity and risk appetite, simply removing “rate hike” from the taboo list is enough to trigger a profound reassessment of expectations.

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