The probability of the Federal Reserve raising interest rates unexpectedly rises to 6.5%: How oil prices reignite inflation and reshape the valuation logic of the crypto market

Entering the first quarter of 2026, the market’s pricing of the Federal Reserve’s monetary policy was once highly concentrated on the rate cut path. However, recent federal funds futures data show that the probability of the Federal Reserve raising rates at least once in 2026 has risen to 6.5%, breaking the one-way expectation of rate cuts that had persisted for nearly half a year. On the surface, this probability still remains in a non-dominant range, but the directional reversal it signals is much more significant than the number itself. The key variable is oil prices. After months of rising, WTI crude oil futures prices have begun to significantly transmit to terminal energy costs and service industry inflation, putting new pressure on the Federal Reserve as “the decline in inflation is not yet complete.” The macro narrative has shifted from “confirmation of a soft landing” to “recurring inflation risks,” posing structural challenges to the valuation environment for risk assets.

Why the Role of Oil Prices in the Inflation Structure Has Become Heavier Again

In the past two years, the main drivers of core inflation have concentrated on housing and service industry wages. At the current stage, oil prices have become an active variable for inflation again through two pathways. The first is direct transmission, as energy prices account for about 7% of the U.S. CPI weight, and rising oil prices directly elevate transportation, travel, and residential energy expenditures. The second is indirect diffusion, where energy costs penetrate food, chemicals, logistics, and even the manufacturing sector, creating cost-push inflation. More importantly, the impact of oil prices on inflation expectations often leads actual data. When consumers and businesses feel continuous price increases at gas stations, the self-fulfilling mechanism of inflation expectations is activated. For the Federal Reserve, this means that the monetary policy response function is shifting from “focusing on core inflation trends” back to a defensive state of “preventing the anchoring of inflation expectations.”

How the Logic of the Federal Reserve’s Rate Hike Choices Has Evolved

The current rise in the probability of a rate hike does not stem from an overheated economy but rather reflects the Federal Reserve’s preventive response to the “second lift of inflation.” From a policy logic perspective, the Federal Reserve faces three constraints. First, the labor market remains resilient, with the labor supply-demand gap not yet restored to pre-pandemic levels, making service industry inflation sticky. Second, the impact of rising oil prices has externalities and is not driven by domestic demand, but monetary policy must respond to its effect on overall inflation. Third, the Federal Reserve has repeatedly emphasized “data dependence” during the policy cycle from 2024 to 2025; if inflation exceeds expectations for three consecutive months, rate cut expectations will be passively corrected. The current market pricing of a 6.5% probability of a rate hike is essentially a repricing of the scenario where “the path of declining inflation is interrupted by oil prices.”

What Valuation Pressure Has Resulted from Interest Rate Expectation Adjustments

For the cryptocurrency market, interest rate expectations are one of the most important external variables in asset pricing models. Mainstream digital assets such as Bitcoin have shown high sensitivity to actual interest rates in past cycles. When the probability of a rate hike rises, the expected path of the risk-free rate is adjusted upward, directly lowering the discount factor for risk assets. From the perspective of capital flows, higher real interest rates in the dollar will weaken the relative appeal of non-yielding and high-risk assets. More structurally, the “macro easing narrative” that the cryptocurrency market has relied on over the past year is showing cracks. If the market shifts from “certainty of rate cuts” to “uncertainty of interest rate paths,” funds will be more inclined to concentrate on short-term certainty assets, putting downward pressure on high-volatility assets. This transmission is not instantaneous, but once the trend is confirmed, it will significantly affect the patterns of capital behavior.

What Position Do Crypto Assets Occupy in the Current Macro Structure

In a structure where oil prices drive inflation and the Federal Reserve is forced to maintain high-pressure rates, the role of crypto assets is evolving from “beneficiaries of macro easing” to “testing grounds for macro hedging.” On the one hand, digital assets have not yet been integrated into the mainstream framework of traditional macro asset allocation, and their correlation with the dollar, gold, and inflation expectations remains unstable, making it difficult for them to be systematically increased as pure inflation hedging tools. On the other hand, the current macro fluctuations are accelerating the inherent differentiation within the cryptocurrency market. Ecosystem projects with stable cash flow characteristics and asset classes less sensitive to the real economy are showing stronger valuation resilience in a high-interest-rate environment. In contrast, sectors relying on high-leverage narratives in low-interest-rate environments face continued outflow pressure. The market is forming a new stratification: macro narratives determine the overall level, while inherent structures and fundamentals determine relative returns.

How Future Monetary Policy and Inflation Expectations May Evolve

In the next 6 to 12 months, the Federal Reserve’s policy path will depend on the actual evolution of inflation data and the anchoring of inflation expectations. If oil prices remain high and begin to transmit to core inflation, the market will face a second adjustment of “higher rates for longer” or even “continued upward revision of rate hike expectations.” From a probability distribution perspective, there are three main paths. Path one is a moderate decline in inflation, with rising oil prices offset by falling core inflation, maintaining low rate hike probabilities, and the market re-anchoring rate cut expectations. Path two is recurring inflation, where service industry inflation and oil prices resonate, forcing the Federal Reserve to actually raise rates within the year, systematically shifting the interest rate center upward. Path three is a stagflation scenario, where slowing growth coexists with rising inflation, leading to a policy dilemma for monetary policy. For the cryptocurrency market, path one maintains the current valuation framework, path two will trigger a systemic restructuring of asset pricing models, and path three will test the independent value narrative of assets in extreme macro environments.

Risk Warning: Asymmetries and Market Misjudgments in Macro Logic

The core risk currently faced by the market is not the probability of a rate hike itself, but the linear extrapolation of changes in macro structure. The first layer of risk lies in the lagging nature of inflation transmission. The complete impact of rising oil prices on inflation takes 3 to 6 months to fully reflect in the CPI; if the market prematurely judges inflation to be controllable, it may encounter passive corrections after data confirmation. The second layer of risk comes from the lagging nature of the Federal Reserve’s communication strategy. The Federal Reserve tends to maintain policy continuity, often adjusting its language only after data confirmation, which can lead to leapfrog adjustments in market pricing at critical junctures. The third layer of risk is the inherent fragility of liquidity in the cryptocurrency market itself. Under the combined effect of macro uncertainty and seasonal capital flows, a low liquidity environment may amplify price volatility. These cumulative risks mean that the current 6.5% probability of a rate hike may not be the endpoint, but rather the starting point of a macro narrative reconstruction process.

Summary

The unexpected rise in the probability of a rate hike to 6.5% reflects a macro situation where oil prices are driving a reconfiguration of the inflation structure, the Federal Reserve’s response function is adjusting, and risk asset valuation models are facing tests. The cryptocurrency market is transitioning from a narrative solely reliant on rate cut expectations to a multidimensional pricing approach that considers uncertainties in interest rate paths, recurring risks of inflation, and the inherent value of assets. Before the macro structure establishes a clear trend, the market will undergo a phase of repeated expectations and differentiated capital flows. For participants, understanding the transmission mechanisms and time lags of macro variables is more valuable for decision-making than simply tracking the probability numbers themselves.

FAQ

Q: Does the rise in the probability of a Federal Reserve rate hike mean that there will definitely be a rate hike in the short term?

A: The 6.5% implied probability reflects the market’s pricing of the likelihood of a rate hike at some future meeting, not a certain event. This data points more towards changes in market expectations for the inflation path rather than a direct forecast of policy actions.

Q: Is the impact of rising oil prices on the cryptocurrency market direct or indirect?

A: Mainly indirect. Oil prices affect inflation expectations, influence the Federal Reserve’s policy path, and subsequently impact the risk-free rate and risk asset valuation models. The cryptocurrency market currently lacks systematic hedging tools directly linked to oil prices.

Q: Do crypto assets still have allocation value in the current macro environment?

A: The macro environment alters the overall valuation levels and capital preferences but does not negate the long-term value of crypto assets at the technical, ecological, and application levels. However, in a phase of rising interest rate uncertainty, the market is more inclined to differentiate between assets supported by fundamentals and those driven purely by narratives.

Q: How should we understand the specific impact of “interest rate expectation adjustments” on the valuation of the cryptocurrency market?

A: In the valuation model for crypto assets, the discount factor is highly sensitive to actual interest rates. When the probability of a rate hike rises, leading to an overall upward shift in the forward rate curve, the present value of future cash flows declines, thereby exerting systemic pressure on asset prices. This impact is more pronounced in liquidity-sensitive assets.