Fed officials lean toward pausing rate hikes in October, could Bitcoin benefit?

Federal Reserve Vice Chair Philip Jefferson has signaled that policymakers may need more time before raising interest rates again, lowering expectations for an October hike as Bitcoin tries to recover while U.S. Treasury yields remain above 5%.

• Fed Vice Chair Philip Jefferson said policymakers may need more time before making another rate move, while markets cut the probability of an October hike to around 25%.
• Bitcoin could get some relief if lower October hike expectations continue to pull Treasury yields down after the 10 year yield recently climbed above 5.3%.
• Jefferson still sees inflation risks tilted to the upside and supported September's rate hike, leaving another increase later this year on the table.
• Bitcoin has struggled to hold recent gains as high Treasury yields and oil prices offset support from strong U.S. spot Bitcoin ETF inflows.

Federal Reserve Vice Chair Philip Jefferson said in an Oct. 1 speech at the University of Virginia that future policy changes should depend on incoming data, the economic outlook and the balance of risks after the central bank raised rates in September.

"My colleagues and I will need to come to our own judgment, which may take more time," Jefferson said.

His comments followed a similar message from New York Fed President John Williams, who said another rate hike this year could be appropriate but saw no urgency to make the move. Both officials are voting members of the Federal Open Market Committee.

Markets have responded by cutting expectations for another increase at the Fed's October meeting. The probability of an October hike dropped to around 25%, after traders earlier considered another move much more likely.

Attention has instead moved toward December as a possible window for another rate increase.

For Bitcoin, the change in expectations removes some of the immediate policy pressure that has weighed on the cryptocurrency in recent weeks. High Treasury yields, oil prices and expectations for further Fed tightening have repeatedly limited attempts by BTC to hold gains.

An October pause could remove one Bitcoin price headwind

Bitcoin entered October after struggling with a jump in U.S. borrowing costs despite strong demand through spot exchange traded funds.

As crypto.news previously reported, the 10 year Treasury yield had already reached 5.2% on Sept. 24, while Bitcoin traded around $84,000 after pulling back from above $87,000.

Yields moved even higher afterward. The 10 year Treasury yield climbed above 5.34% during trading on Oct. 1 before retreating toward 5.25% as markets reassessed the likelihood of another immediate Fed hike.

A lower probability of an October move could ease one source of pressure on Bitcoin if Treasury yields continue to retreat. Higher government bond yields give investors a relatively attractive return on lower risk assets and can make speculative assets less appealing, while rising borrowing costs can tighten financial conditions across markets.

Recent Bitcoin trading has shown how closely that issue is being watched.

The cryptocurrency fell 4.3% to around $83,500 last week as the 10 year yield moved from approximately 4.95% to 5.20%, even as crypto ETF inflows reached $2.39 billion for the week.

ETF demand had therefore remained positive while higher yields worked in the opposite direction.

Bitcoin faced similar pressure earlier in September. A move toward $77,000 coincided with higher oil prices, persistent U.S. inflation and rising Treasury yields, while the 50 week EMA emerged as an important area of technical support.

Jefferson's remarks leave open the possibility that some of that rate pressure could cool before the October meeting, but his assessment of inflation gives the Fed little room to declare the tightening cycle finished.

Jefferson still sees inflation risks tilted higher

Jefferson supported the Fed's September decision to raise the federal funds target range by 25 basis points to 3.75% to 4%.

He said economic activity and labor market conditions remained broadly solid, while inflation continued to run above the central bank's 2% target.

Headline personal consumption expenditures inflation stood at 3.4% in August. Jefferson said energy prices had been the main driver behind the recent pickup, pointing to volatile oil markets and pressure on global energy supplies from geopolitical tensions.

"I remain concerned about the risk of higher energy prices leading to a persistent rise in inflation more broadly," he said.

His base case is for inflation to remain elevated in the short run before moving back toward 2% as energy and other price shocks fade. Risks around that forecast remain tilted to the upside because of geopolitical developments and stronger than expected demand.

Jefferson said the Fed needs to determine whether underlying trends show inflation returning to target quickly enough before deciding on the appropriate policy stance.

For Bitcoin traders, that keeps December in play even if policymakers decide not to move this month.

Another Fed hike has already been identified as one of the larger macro risks facing Bitcoin. HashKey Group senior researcher Tim Sun recently said a second Fed rate hike could have more influence on Bitcoin than the stalled U.S. CLARITY Act.

Sun said an October move would change the way investors interpreted September's increase because two consecutive hikes would indicate a more persistent tightening cycle. He identified Treasury yields, spot Bitcoin ETF flows and derivatives leverage as key factors to watch.

An October pause would break that sequence, although it would not rule out another hike before the end of the year.

Treasury yields remain a key test for Bitcoin price

Jefferson directly acknowledged the rise in bond yields since the September FOMC meeting, saying yields across the term structure had moved higher as investors reassessed the macroeconomic environment.

Long term yields can tighten financial conditions without the Fed raising its policy rate again, giving officials another reason to wait and see how the economy responds.

Bitcoin has already shown sensitivity to changes in that part of the market.

After the Fed raised rates in September, BTC initially moved toward $75,000 before recovering and eventually climbing above $87,000. U.S. spot Bitcoin ETFs recorded roughly $2.65 billion in inflows across five sessions through Sept. 23, while Strategy purchased 950 BTC for $75.7 million between Sept. 14 and Sept. 20.

The post Fed Bitcoin rally showed that demand could offset some of the pressure from tighter monetary policy, although BTC later pulled back as Treasury yields resumed their climb.

Jefferson's comments could therefore offer Bitcoin more room to recover if the drop in October hike expectations is followed by a sustained retreat in yields.

A pause by itself does not guarantee that outcome. Economic data strong enough to push long term yields higher could continue to weigh on risk assets even without an October rate increase.

December Fed hike risk has not disappeared

Upcoming U.S. economic data will determine whether the Fed can remain patient beyond October.

Jefferson expects real GDP growth to remain close to the 2.4% pace recorded during the first half of 2026. He described the labor market as stable, with the unemployment rate at 4.1% in August and near what he considers maximum employment.

Strong economic activity has been accompanied by inflation that remains well above target. Jefferson said short term inflation expectations were elevated, although most longer term measures remained consistent with the Fed's 2% objective.

Oil remains another variable for both inflation and Bitcoin. Higher energy costs can feed into headline inflation and reinforce expectations that interest rates will remain elevated, while falling oil prices could reduce some of that pressure.

Bitcoin has recently faced the combination of high Treasury yields, elevated oil prices and expectations for another Fed hike, even as spot ETF demand provided support.

Jefferson said he would continue assessing whether inflation was returning toward the Fed's target at a sufficient pace, with more incoming data expected to give policymakers a clearer picture of underlying trends and the appropriate stance of monetary policy.
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