BNP Paribas now warns the Fed may need to hike rates three times starting in December, reversing the three cuts it had expected for 2025 — a shift driven by stronger-than-anticipated U.S. jobs data and rising inflationary pressures that the bank links in part to the U.S.-Iran conflict.
Key points from BNP Paribas’ Markets 360 analysis
- The bank has abandoned its prior view of stable policy and expects a sequence of rate increases at consecutive Federal Open Market Committee meetings beginning at year-end.
- Policymakers may need to remove monetary stimulus as inflation risks intensify while the labor market remains tight.
- BNP Paribas projects the unemployment rate could drift down to about 4% by year-end, giving the Fed more room to focus on price stability.
Recent data and market reaction
- Fresh labor data supports BNP Paribas’ stance: U.S. nonfarm payrolls rose by 172,000 last month, well above the 85,000 consensus, while the unemployment rate held at 4.3%.
- Prediction markets have moved noticeably hawkish: Polymarket now assigns a 52% probability of a Fed hike before year-end, the highest it’s shown after the payrolls print.
- CME FedWatch shows a 42.7% chance that rates will be higher by December. Futures markets still expect rates to sit largely unchanged through most of the year, but they’ve lowered the odds of additional cuts.
Why it matters
- Inflation remains above the Fed’s long-run target, and geopolitical shocks — notably tensions involving Iran — risk pushing prices higher again. Those factors underpin BNP Paribas’ call for tighter policy.
- For markets, the prospect of policy tightening can pressure risk assets, including cryptocurrencies, while geopolitical uncertainty can create competing flows into perceived safe-havens or alternative stores of value.
Fed views remain split
- Some officials urge caution. As reported by crypto.news, San Francisco Fed President Mary Daly emphasized that restoring price stability is essential but warned against achieving it by inflicting unnecessary damage on the economy; she’s argued the Fed can wait for more data before making major moves.
- Others are more alarmed. Former New York Fed President Bill Dudley has argued the Fed risks losing credibility if inflation stays above 2% for too long. Dudley believes the neutral rate (r*) may be higher than officials assume and warns that if inflation expectations drift into the 3–5% range, the Fed may eventually have to act far more aggressively.
Bottom line for crypto investors
The path for interest rates is less certain than markets hoped. If BNP Paribas is right and the Fed pivots back to tightening, risk assets including crypto could face headwinds. At the same time, geopolitical risk and inflation worry could keep demand for alternative assets elevated. Traders and holders will be watching jobs, inflation prints, and Fed speak closely for signals on which way policy — and markets — will tilt.
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