Rising interest rate expectations in the US? JPMorgan's forecast is at odds with market expectations

Market expectations for the Federal Reserve’s (Fed) future policy direction are undergoing significant adjustments. While most traders and cryptocurrency analysts are still anticipating rate cuts as positive signals, JPMorgan Chase has presented a starkly different judgment: interest rate hikes in the U.S. may occur before any cuts. This forecast sharply contrasts with the current mainstream market view and also poses a new challenge for optimistic crypto investors.

Rate Cut Dreams Shattered: Divergence Between JPMorgan Chase and Crypto Market Expectations

According to Reuters, JPMorgan Chase indicates that the Federal Reserve will keep interest rates in the 3.5% to 3.75% range this year, without adjusting the current policy for the time being. More notably, they predict that the next policy move will be a rate hike rather than a cut—expecting a 1 basis point (25 basis points) increase in Q3 2027.

This stands in stark contrast to the market sentiment reflected by the CME FedWatch Tool. The tool shows traders heavily betting on at least two rate cuts this year, each by 1 basis point. Many crypto analysts share this view, believing that lower borrowing costs will reignite risk appetite in the economy and financial markets, thereby boosting the performance of risk assets like Bitcoin. FXTM senior market analyst Lukman Otunuga once stated, “Although 2025 will be challenging, with active supply reduction and rate cut expectations, Bitcoin could rebound strongly in 2026.”

Fed Maintains Status Quo, the Real Test Begins

JPMorgan Chase’s forecast is supported by its own logic. They point out that the recent technical pattern of the 10-year U.S. Treasury yield warrants attention. This pattern suggests that the 10-year yield, which serves as a global asset pricing benchmark, could challenge the 6% high within the next year (currently around 4.18%). If this scenario materializes, it would exert significant downward pressure on overvalued assets and risky investments.

However, JPMorgan analysts also acknowledge variables. If the labor market shows clear signs of fatigue or inflation rates decline significantly, the Fed could still pivot its policy stance later this year. This indicates that uncertainty remains, but the current fundamentals do not support such an optimistic outlook.

Strong Labor Market, Making Rate Hike Expectations More Realistic

Recent data show that the market’s rate cut expectations face a reality check. December’s employment data revealed that the U.S. unemployment rate unexpectedly fell to 4.4%, reflecting the continued resilience of the labor market—contradicting the historical pattern where rate cuts are often associated with economic weakening. As a result, international investment banks like Goldman Sachs and Barclays have revised their forecasts, delaying the start of rate cuts from previously expected March and June to September and December, and in some cases even later.

This robust economic backdrop indirectly reinforces JPMorgan Chase’s rate hike forecast. When the labor market remains healthy and employment data continues to improve, the Fed lacks sufficient justification to cut rates immediately.

Policy Outlook Before Chair Transition

Market expectations for the Fed’s policy direction are also influenced by personnel changes. Chair Jerome Powell’s term will end this May, making his successor a focal point of attention. The market generally anticipates that the new chair will adopt a more dovish stance than Powell, which some participants hope will create room for future rate cuts.

However, as JPMorgan Chase’s forecast indicates, the probability of a policy shift in the short term remains low. Expectations of rate hikes are emerging in the U.S., posing a significant challenge to the crypto market, which had been hoping for a more accommodative environment. In the coming months, the market will continue to sway between expectations of rate cuts and concerns about hikes.