Strong employment data prompts UBS to turn hawkish; Bitcoin may remain under pressure until December.

Author: Andjela Radmilac, Senior Analyst at CryptoSlate; Translated by: Shaw, Jinse Finance

Quick Overview

• UBS previously predicted the Federal Reserve would not raise interest rates, but now forecasts that the Fed will raise rates by 25 basis points in both September and December.

• Rising interest rate expectations could support yields and dollar assets, thereby increasing the opportunity cost of Bitcoin and suppressing risk appetite.

• The August CPI data released on September 11 and the Fed's September decision will test whether inflation will make a December rate hike possible.

• UBS's latest forecast predicts the Federal Reserve will raise interest rates twice this year, extending potential macroeconomic headwinds for Bitcoin into December. The impact extends beyond the September policy decision: until the end of 2026, investors may have to weigh the opportunity cost of holding non-interest-bearing assets against interest-bearing alternatives. Reuters reported on September 7th that UBS Global Wealth Management now expects the Federal Reserve to raise interest rates by 25 basis points (0.25 percentage points) each in September and December. The institution previously anticipated no monetary policy adjustment this year. UBS's rationale includes strong August employment data, hawkish statements from the Federal Reserve, and inflation risks from supply chain bottlenecks. Market expectations have already converged on this assessment. Futures market pricing indicates a 58% probability of a 25 basis point rate hike at the September 15-16 FOMC meeting, compared to 52% before the employment data release. For Bitcoin, the risk lies in the fact that rising rate hike expectations could support US Treasury yields, strengthen the attractiveness of dollar assets, and thus reduce investors' risk appetite. Strong Employment Adds to Inflationary Pressures The US Bureau of Labor Statistics reported that 162,000 jobs were added in August, with the unemployment rate remaining at 4.1%. This job increase exceeded the 12-month average of 31,000 per month. However, the employment recovery is not balanced. The food service industry added 59,000 jobs, and local government education departments added 42,000 jobs; the information technology industry lost 23,000 jobs. Even so, the resilience of the labor market has altered the Federal Reserve's policy trade-offs. Weaker employment would increase pressure for looser monetary policy; conversely, strong employment would give policymakers more room to focus on inflation and maintain a restrained monetary policy environment. Federal Reserve Governor Christopher Waller articulated this trade-off in a speech on September 3rd, prior to the release of the jobs data. He stated that if inflation continues to improve, the Fed could keep interest rates unchanged; however, if August's inflation data remains high, he would consider supporting a rate hike. Therefore, this jobs report reinforces the labor-side arguments for tightening monetary policy, and inflation data will be the next key variable in determining the policy direction in September. UBS's forecast also extends the potential monetary tightening cycle beyond just the next policy meeting. The market will not only react to the Fed's next decision, but also price in the interest rate expectation path across multiple consecutive meetings. The Fed's explanation of the monetary transmission mechanism illustrates how policy expectations affect long-term interest rates, asset prices, and exchange rates. Financing conditions may tighten before policymakers actually implement rate hikes. According to UBS's outlook, the risk for Bitcoin lies in the possibility that this tight monetary environment will persist until the end of the year. Rising US interest rate expectations will keep yields high, further increasing the attractiveness of dollar-denominated interest-bearing assets. The market's inclusion of a December rate hike in its expectations has also amplified the importance of the September policy meeting. Investors will assess both the immediate decision of this meeting and pay close attention to the Fed's statements on "under what circumstances a further rate hike would be necessary."

  

  How this pressure is transmitted to Bitcoin

  Bitcoin does not generate contractually agreed interest. The opportunity cost of holding Bitcoin increases when investors can obtain higher returns from relatively safe interest-bearing assets. Even if investors' long-term view of Bitcoin does not change, this raises the threshold for them to bear the risk of price volatility.

  Rising borrowing costs constitute another transmission channel.

  Higher financing costs make it harder to maintain leveraged positions, while tighter financial conditions reduce investors' willingness to inject new funds into risky assets. Historical research suggests this risk cannot be ignored. A 2023 working paper from the International Monetary Fund pointed out that the Federal Reserve's tightening monetary policy weakens the universal pricing factor for crypto assets by suppressing market risk appetite. This historical correlation explains why Bitcoin is affected by monetary conditions, but it's uncertain to what extent the market will react in 2026. CryptoSlate's analysis of the employment report on September 5th explored the immediate pressures facing the market and the impending inflation test. UBS offered a longer-term perspective: its anticipated December rate hike suggests that restrictive monetary conditions may continue until the end of the year. Bitcoin's market performance depends on both interest rate expectations and market demand. If investors have already priced in the interest rate hike expectations into asset prices, the impact of the actual rate hike will be relatively limited; and the demand from the crypto industry itself may also offset some of the downward pressure from the macro level. The next key test is the August Consumer Price Index (CPI) to be released on September 11th, ahead of the Federal Open Market Committee (FOMC) meeting on September 15th and 16th. If inflation cools, it will meet Waller's previous condition for supporting maintaining the current interest rate. If inflation data rises again, it will reinforce the view that, given the continued resilience of the labor market, price pressures require stronger monetary tightening measures. The Fed's quiet period for its policy meeting began on September 5th and will continue until September 17th, meaning there will be no new policy statements before the meeting. Therefore, inflation data will be the most direct signal at present; and the committee's decision and economic forecasts will become the next core basis for judging how strong policymakers' demands for further tightening are. Following the September interest rate meeting, the next interest rate meeting will be held on December 8th and 9th. UBS expects another rate hike at that time, but before the decision is finalized, the inflation and employment situation may change significantly. For Bitcoin, the core issue is: will subsequent inflation data push up interest rate expectations, and will US Treasury yields and the overall financial environment tighten accordingly? If inflation falls, or the Fed's statements turn dovish, market pressure will be alleviated. If inflation remains high, UBS's prediction of two rate hikes will have greater credibility, and Bitcoin will have to face a fading macroeconomic environment.