Fed Vice Chairman Philip Jefferson stated that policymakers may need more time before making another interest rate adjustment, a statement that reduced market expectations for a rate hike in October; meanwhile, Bitcoin is attempting to recover while the yield on U.S. Treasury bonds remains above 5%.

Key points:

• Jefferson stated that policymakers may need more time before taking the next step in interest rate actions, and the market has lowered the probability of a rate hike in October to about 25%.
• If the expectation of a rate hike in October continues to cool down and drives down U.S. Treasury yields, Bitcoin may gain some respite; the yield on 10-year U.S. Treasuries recently exceeded 5.3%.
• Jefferson still believes that the risk of inflation is on the rise and supports a rate hike in September, which means that the possibility of another rate hike within the year still exists.
• Despite strong capital inflows into US spot Bitcoin ETF, high US Treasury yields and oil prices are still offsetting the support for Bitcoin.

On October 1st, during a speech at the University of Virginia, Jefferson stated that following the Federal Reserve's interest rate hike in September, future policy adjustments should depend on subsequent data, economic prospects, and risk-balance considerations.

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

His remarks echoed those of John Williams, the chairman of the Federal Reserve Bank of New York. Williams previously stated that it might be appropriate to raise interest rates once more this year, but there is no need to act in a hurry. Both individuals are voting members of the Federal Open Market Committee (FOMC).

As a result, markets have lowered their expectations for another interest rate hike by the Federal Reserve at its October meeting. Traders previously thought the likelihood of another hike was higher, but now the probability of a hike in October has dropped to around 25%.

Market attention has shifted to December, viewing it as a potential window for another interest rate hike.

For Bitcoin, the expected changes have weakened the direct policy pressures that have been suppressing this cryptocurrency recently. High U.S. Treasury yields, oil prices, and expectations of further tightening policies by the Federal Reserve have repeatedly limited the ability of BTC to maintain its gains.

A pause in interest rate hikes in October could eliminate one source of pressure on Bitcoin

Against the backdrop of rising borrowing costs in the United States, but strong demand for spot exchange-traded funds ( ETF ), Bitcoin enters October.

According to previous reports from crypto.news, on September 24th, the yield of 10-year U.S. Treasury bonds rose to 5.2%, while Bitcoin's trading price was around $84,000 after falling from above $87,000.

Subsequently, yields continued to rise. During trading on October 1st, the yield on 10-year U.S. Treasury bonds briefly rose above 5.34%, before falling back to around 5.25%. This was due to the market's re-evaluation of the likelihood of the Federal Reserve raising interest rates again shortly thereafter.

If U.S. Treasury yields continue to fall, the reduced probability of a rate hike in October could alleviate one of the pressures facing Bitcoin. Higher yields on government bonds would offer investors relatively attractive returns on low-risk assets, thereby diminishing the attractiveness of speculative assets; moreover, rising borrowing costs would also tighten financial conditions across the market.

Bitcoin's recent trading performance indicates that the market is closely monitoring this issue.

Last week, as the yield on 10-year U.S. Treasury bonds rose from around 4.95% to 5.20%, Bitcoin fell by 4.3% to around $83,500, despite the fact that crypto ETF saw a capital inflow of $2.39 billion that week.

This means that the demand for ETF remains positive, but higher yields have the opposite effect.

Earlier in September, Bitcoin also faced similar pressures. As oil prices rose, inflation in the United States continued, and U.S. Treasury yields increased, Bitcoin once fell to $77,000; at the same time, the 50-week moving average ( EMA ) became an important technical support level.

Jefferson's remarks suggest that some of the interest rate pressures may ease before the October meeting, but his assessment of inflation also indicates that the Federal Reserve has little room to announce that the tightening cycle has ended.

Jefferson still believes that the risk of inflation is on the rise.

Jefferson supports the Federal Reserve's decision to raise the federal funds target rate range by 25 basis points to 3.75% to 4% in September.

He stated that economic activity and the labor market conditions remain generally strong, yet inflation is still above the Federal Reserve's target of 2%.

The overall personal consumption expenditure inflation rate in August ( PCE ) was 3.4%. Jefferson stated that the main driver of the recent rebound in inflation is energy prices, and pointed out that geopolitical tensions have put pressure on global energy supply and exacerbated fluctuations in the oil market.

"I'm still concerned that higher energy prices could lead to a broader and sustained rise in inflation," he said.

His baseline scenario is that inflation will remain high in the short term, before falling back to around 2% as energy and other price shocks subside. However, due to geopolitical developments and demand exceeding expectations, there is still a risk that this forecast may turn upward.

Jefferson stated that the Federal Reserve needs to determine whether potential trends indicate that inflation can return to the target level fast enough before deciding on an appropriate policy stance.

For Bitcoin traders, even if policymakers do not take action this month, December remains a time point that requires attention.

Another interest rate hike has been regarded as one of the major macroeconomic risks facing Bitcoin. A senior researcher HashKey Group recently stated that the second Fed interest rate hike could have a greater impact on Bitcoin than the stagnant US CLARITY Act.

Sun believes that if there is a rate hike in October, investors' interpretation of the September rate hike will change, as two consecutive rate hikes would indicate that the tightening cycle is more persistent. He lists U.S. Treasury yields, spot Bitcoin ETF capital flows, and derivatives leverage as factors that require close attention.

A pause in interest rate hikes in October will break this continuity, but it does not mean that there will not be further rate increases within the year.

U.S. Treasury yields remain a key test for Bitcoin prices

Jefferson directly acknowledged that since the FOMC meeting in September, bond yields have risen, and stated that as investors re-evaluate the macroeconomic environment, yields across various maturities are on the rise.

Even if the Federal Reserve no longer raises policy rates, long-term yields could still tighten financial conditions, which gives officials a reason to continue to observe and wait for economic responses.

Bitcoin has already shown sensitivity to these changes in the market.

After the Federal Reserve raised interest rates in September, BTC initially fell to $75,000, then rebounded and eventually rose above $87,000. The US spot Bitcoin ETF recorded a net inflow of approximately $2.65 billion over the five trading days up to September 23, while Strategy purchased 950 BTC between September 14 and September 20, spending $75.7 million.

This indicates that the demand can partially offset the pressure brought about by tighter monetary policies. However, as U.S. Treasury yields rose again later on, BTC saw a decline once more.

Therefore, if yields continue to fall after the expectation of a rate hike in October declines, Jefferson's remarks could provide more room for Bitcoin to rebound.

However, merely pausing interest rate hikes does not guarantee this outcome. If economic data is strong enough to drive long-term yields higher, even if there are no rate hikes in October, risky assets may still come under pressure.

The risk of interest rate hikes in December has not disappeared.

The upcoming U.S. economic data will determine whether the Federal Reserve can continue to be patient after October.

Jefferson expects that the actual GDP growth rate will be close to the 2.4% level in the first half of 2026. He believes that the labor market is stable, with an unemployment rate of 4.1% in August, which is close to what he considers to be the level of full employment.

Strong economic activity is accompanied by inflation that remains significantly higher than the target. Jefferson stated that short-term inflation expectations are on the high side, but most long-term indicators are still in line with the Federal Reserve's 2% target.

Oil prices remain another variable in the equation of inflation and Bitcoin. Higher energy costs will feed into overall inflation and reinforce the expectation that interest rates will remain high; whereas a decline in oil prices could alleviate some of that pressure.

While there is a need for support in the spot market for ETF, Bitcoin has recently been facing a situation where high U.S. Treasury yields, rising oil prices, and expectations of another interest rate hike coexist.

Jefferson stated that he will continue to assess whether inflation will return to the Federal Reserve's target at a fast enough pace, and more data to be released will help policymakers more clearly judge potential trends as well as the appropriate monetary policy stance.