Traders Bet on Fed Rate Cuts to Lower Yields, Hopes for Bitcoin Rise Come With a Twist

Bitcoin bulls are optimistic that the Federal Reserve’s anticipated September 17 rate cut will boost risk assets, but rising long-term Treasury yields may temper gains. While the Fed is expected to lower rates by 25 basis points to 4.00%-4.25%, fiscal pressures and sticky inflation could keep long-dated yields elevated.

Rising Debt Pressures
The U.S. government plans increased Treasury issuance to fund recent tax cuts and higher defense spending, potentially adding $2.4 trillion to deficits over the next decade. Analysts warn this could push long-term yields higher, even as short-term rates fall.

“The Treasury’s expanded issuance will likely pressure longer-term yields,” said T. Rowe Price analysts, while Schwab’s Kathy Jones highlighted that investors demand higher yields to offset inflation and dollar depreciation risks.

Inflation Complicates the Outlook
Recent data show year-over-year CPI rising to 2.9% in August, signaling inflation remains a concern. This complicates the case for aggressive rate cuts and may prevent long-term yields from dropping sharply.

Market Pricing Already Reflects Easing
The 10-year Treasury yield recently touched 4%, down over 60 basis points since May. ING’s Padhraic Garvey warned this could be an overshoot, noting that inflation could drive yields back up in the coming months.

Lessons from 2024
A similar scenario unfolded last year: the 10-year yield dropped ahead of the September 2024 Fed cut, only to rebound to 4.57% by year-end. Analysts suggest the same pattern could repeat in 2025.

Implications for Bitcoin
Bitcoin climbed from $70,000 to $100,000 in late 2024 despite rising yields, supported by favorable regulatory sentiment and corporate adoption. With those factors weaker today, higher long-term yields could weigh on BTC, even amid short-term optimism from expected rate cuts.

Investors should monitor the interplay between Fed policy, fiscal expansion, and bond market dynamics, which together may define bitcoin’s near-term performance.