In-depth analysis of interest rate expectation divergence: investment banks maintain rate cut bets, while the market prices in a non-easing stance for the entire year

In April 2026, the interest-rate expectations market saw a rare split and a deep fault line. On one side, mainstream Wall Street banks such as Goldman Sachs, Bank of America, and Barclays still maintained the view that the Federal Reserve would cut rates twice within the year. On the other side, the CME FedWatch tool shows that traders have completely abandoned pricing any easing measures this year, and are even seriously considering the probability of rate hikes. The divergence among the three sets of interest-rate expectations—Wall Street banks, the Federal Reserve dot plot, and the federal funds futures market—has reached the largest gap in recent years, and the macro “pricing anchor” for crypto assets is undergoing unprecedented turmoil.

Why market participants are so sharply divided on the direction of interest rates

Differences among market participants in their judgment of the interest-rate path essentially reflect differences in the weighting of information and decision logic. Investment banks rely on macroeconomic models and historical cycle projections; their rate-cut forecasts are built on a mid-term judgment that the labor market will weaken and that inflation will gradually decline. In March, Goldman Sachs pushed the timing of its first rate cut from June to September, but it still kept its baseline forecast of two rate cuts within the year, with the second window potentially in December. Bank of America also believes there will be rate cuts of 25 basis points in September and December, and further forecasts that there will be three rate cuts over the full year of 2026. Barclays moved the second rate cut to March 2027, but it likewise maintained the baseline scenario of rate cuts.

In stark contrast is the federal funds futures market. As of April 8, 2026, the CME FedWatch tool shows that market participants have entirely ruled out the possibility of any rate cuts in 2026. The probability priced for keeping rates unchanged for the full year is over 70%, and the probability of rate hikes has even risen to about 12.5%. The core driving force behind this cliff-like shift is not the economic data itself, but the outbreak of the Middle East geopolitical conflict.

Where the Federal Reserve dot plot sits between Wall Street forecasts and market pricing

As a policymaker, the Federal Reserve’s stance is neither aggressive nor dovish—it offers a third path between Wall Street forecasts and market pricing. In the dot plot median released after the March FOMC meeting, the Fed maintained the judgment that it would cut rates only once in 2026 (25 basis points). What is worth noting is that the number of officials predicting no rate cuts this year increased from 4 to 7; there are 7 officials expecting one cut; and Powell disclosed that 4 to 5 officials among them shifted from originally expecting two rate cuts to expecting one. This means the Fed’s internal easing consensus is unraveling. Even though the dot plot’s dispersion is converging, the direction of that convergence is toward fewer rate cuts.

A change in the Fed’s own stance is also equally important. Although the dot plot median maintains the surface expectation of one rate cut, the distribution shows that the number of officials supporting larger-magnitude rate cuts has clearly decreased. At the March press conference, the Federal Reserve Chair Powell said explicitly: “If we don’t see inflation improve, there will be no rate cuts.” Against the backdrop of the Iran–Israel conflict pushing up oil prices and core PCE staying elevated, the Fed’s substantive hawkish inclination has already become very clear.

How the Middle East geopolitical conflict became the catalyst for a reversal in rate expectations

From January 2026 to April, the market’s pricing for the number of rate cuts within the year moved from two to three times straight down to zero. This extreme expectations reversal took less than three months. In January this year, investors believed the probability of no rate cuts for the year was only 5%, with at least a 50% chance of two to three rate cuts. But by April 8, market pricing showed that the probability of keeping rates unchanged exceeded 72%, and the probability of rate hikes rose to 12.5%.

The key variable triggering this reversal is the Middle East conflict. Iran has effectively bottlenecked the Strait of Hormuz, disrupting nearly 20% of the world’s oil transportation. Since the outbreak of the conflict, Brent crude has risen by more than 40%. The surge in oil prices directly feeds into inflation expectations—both PCE and CPI data show that the inflation cooling process has clearly slowed. Core PCE rose 3.1% year over year in January, the highest since March 2024. A Deutsche Bank analyst pointed out that the Federal Reserve is likely to draw lessons from 2021–2022 and choose a more aggressive hawkish stance, to avoid repeating the “mistake of responding too slowly to inflation.”

How the split in rate expectations transmits to crypto asset valuation models

The valuation logic for crypto assets has undergone profound changes over the past two years: the correlation between Bitcoin and Nasdaq technology stocks has continued to strengthen. Crypto is increasingly being treated by the market as a high-beta risk asset rather than a pure inflation-hedging tool. This structural shift means that once rate expectations turn, the adjustment magnitude for crypto assets often ends up being more severe than that of traditional risk assets.

When rate-cut expectations are delayed or disappear, the opportunity cost of holding non-cash-flow assets rises, and investors begin to reassess the systematic impact of “higher rates for longer” on the valuation of crypto assets. The prior trading logic based on “getting ahead of rate cuts” has essentially failed. Short-term interest rates staying high—and even exhibiting upward stickiness—directly weakens the valuation anchor in the crypto market, subjecting high-beta assets, AI narrative coins, and assets supported by non-cash-flow themes to more obvious valuation compression pressure.

Looking at the specific transmission paths, differences in rate expectations affect the crypto market through at least three channels. First, they influence fund inflows through the U.S. dollar exchange rate and global liquidity conditions. Second, they affect fund rotation from crypto assets to safer assets through changes in risk appetite. Third, they amplify market volatility through liquidation pressure from highly leveraged trading. When the market faces both interest-rate path uncertainty and geopolitical risk at the same time, these three channels often stack together, forming composite pricing pressure.

What crypto assets face when a fissure appears between Wall Street forecasts and market pricing

The degree of divergence in rate expectations itself is becoming a risk indicator that crypto market participants pay close attention to. When investment banks maintain rate-cut forecasts while the market has already abandoned the easing bet, any side whose expectations are disproven can trigger large swings in the market. If the investment banks’ rate-cut forecasts ultimately come true—meaning the Federal Reserve begins cutting rates in September—then the market could rebound sharply from the currently extremely hawkish pricing, and crypto assets may experience a round of liquidity-driven valuation repair. Conversely, if the market’s zero rate-cut pricing is verified as correct, then forecasts from banks such as Goldman Sachs and Bank of America will be forced to move further out or even be effectively reduced to zero. At that point, the adjustment of rate expectations itself will become an additional source of pressure for the crypto market.

Meanwhile, the most hawkish scenario proposed by JPMorgan—no rate cuts for all of 2026 and a 25-basis-point rate hike in the third quarter of 2027—is gradually moving from a fringe assumption into mainstream discussion. The probability of cumulative 25-basis-point rate cuts by December has fallen to 14.5%, while the probability of maintaining rates unchanged is as high as 72.9%. At the same time, the probability of a 25-basis-point rate hike has risen to 12.5%, implying that the market has begun to take seriously the possibility that the Federal Reserve will resume rate hikes.

Summary

The current crypto market is operating within a triple macro suppression framework of “higher rates for longer + energy shocks + liquidity contraction.” The market has completed the first round of rapid repricing. The key is not a simple classification of “risk assets versus safe-haven assets,” but a reordering of “liquidity priority.”

From the perspective of valuation logic, short-end interest rates staying high and exhibiting upward stickiness means that DCF-type valuation models based on early rate-cut assumptions have essentially failed. For crypto assets, this means that BTC may still benefit in extreme scenarios from fiat credit and sovereign-risk narratives, but in normal conditions its price still depends highly on the direction of U.S. dollar liquidity. Higher energy prices squeeze the risk budgets of both households and institutions, extend the global high-rate cycle, and impose a systematic suppression on all risk assets.

At the level of trading structure, the current crypto market has entered a “light beta, heavy structure” phase. BTC still holds a relative advantage because it combines deep liquidity with macro narratives, but most altcoins are still in a valuation re-pricing cycle and have not yet shown a clear directional trend. Clarifying the macro path—whether it is a significant drop in inflation data or easing geopolitical conflicts—will become the key catalyst for the next stage of market repricing.

Frequently asked questions

Q: Why do Wall Street banks such as Goldman Sachs and Bank of America still maintain forecasts for two rate cuts in 2026?

Goldman Sachs and Bank of America base their rate-cut forecasts on a baseline view that the labor market will gradually weaken and core inflation will gradually decline. Goldman Sachs believes that by September, further softening in the labor market and improvements in potential inflation will jointly provide the rationale for rate cuts. Bank of America, based on a mid-term assessment of the economic outlook, believes the Federal Reserve still has policy space to deliver two rate cuts within 2026. The structural macroeconomic models used by these banks assign relatively low weight to short-term geopolitical shocks, so their forecast adjustments show a clear lag.

Q: Why does market pricing show that the probability of no rate cuts in 2026 exceeds 70%?

According to the CME FedWatch tool, the current pricing in the federal funds futures market indicates that the probability of keeping rates unchanged throughout 2026 exceeds 72%, while the probability of a rate hike has risen to 12.5%. The main driver behind this extreme pricing is the Middle East conflict’s oil-price surge—Brent crude has risen by more than 40% since the outbreak of the conflict, and the market believes that high oil prices will suppress the Federal Reserve’s room to cut rates.

Q: What does the split in rate expectations mean for crypto assets?

A split in rate expectations means that the macro “pricing anchor” for crypto assets is losing effectiveness. When there is a significant difference between Wall Street forecasts and market pricing, the crypto market faces dual risks: if rate-cut expectations fail, the market will face continued suppression from a high-rate environment; if rate cuts occur unexpectedly, the current extreme hawkish market pricing will face rapid correction, with volatility rising accordingly. Until the divergence narrows, the valuation of crypto assets will continue to be shadowed by macro uncertainty.