Key Takeaways:
The probability of a Federal Reserve interest rate hike by year-end has flipped to 54.1 percent, a sharp reversal from earlier expectations of policy easing that now threatens risk assets like Bitcoin.
"A majority of participants stressed that a rate hike may be appropriate if inflation persisted above the central bank’s 2% goal," minutes from the Federal Open Market Committee’s April meeting stated, providing context for the shift in market pricing.
Data from the CME FedWatch tool as of May 20, 2026, showed the 54.1 percent probability for a hike compares to 44.4 percent for rates remaining unchanged and just 1.5 percent for a cut. This hawkish repricing sent Bitcoin down 3.8% to $65,900 and caused a ripple effect across correlated assets, with Ethereum (ETH) seeing similar declines.
For Bitcoin, this hawkish turn is a significant headwind. Higher interest rates increase the appeal of yielding assets like government bonds, making non-yielding assets such as Bitcoin relatively less attractive and potentially triggering capital outflows from the cryptocurrency market. The next key support level for Bitcoin is watched at $64,500.
The sentiment shift has been dramatic. At the beginning of the year, traders were overwhelmingly betting on a series of rate cuts from the Federal Reserve. However, a string of stronger-than-expected inflation and labor market reports has forced a complete reversal. The market is now pricing a greater likelihood of a hike than a cut over the next seven months, a scenario that seemed unthinkable just weeks ago. The move is also reflected in traditional markets, with the US Dollar Index (DXY) strengthening and 2-year Treasury yields climbing in response to the adjusted outlook.
The change in market pricing follows commentary from the Federal Reserve itself. Minutes from the latest FOMC meeting revealed a growing concern among policymakers that inflation may be more persistent than previously anticipated. According to the minutes, a "majority" of officials noted an "increased risk" that inflation would take longer than expected to return to their 2 percent target. "Many" participants said they would prefer removing language from the committee’s post-meeting statement that suggested an "easing bias," signaling a clear turn away from future rate cuts.
This article is for informational purposes only and does not constitute investment advice.
