1 hour ago
9
Eight weeks ago, markets were pricing in rate cuts. Now, one of the most well-connected voices in monetary policy circles is floating the possibility of rate hikes by September.
Rob Kaplan, vice chairman at Goldman Sachs and former president of the Federal Reserve Bank of Dallas, said the Fed may need to raise interest rates as soon as September 2026 if inflation remains elevated.
From cuts to hikes in two months flat
As recently as late April, the prevailing market consensus pointed toward at least one rate cut later this year. Traders had positioned accordingly, with risk assets, including crypto, benefiting from the assumption that cheaper money was on its way.
Kaplan’s remarks in mid-June upend that thesis entirely. He emphasized that while the Fed does not need to act immediately in June or July, it must be prepared to take decisive action by September if inflation data continues to show stickiness.
Kaplan ran the Dallas Fed from 2015 to 2021 and now sits as vice chairman at Goldman Sachs. His comments also revealed where he thinks monetary policy should settle long-term. Kaplan positions the neutral rate at 0.75% to 1%, framing the Fed’s recent rate cuts as more of an insurance policy for the labor market than a genuine response to economic weakness.
What the inflation data is telling us
The Fed has a 2% inflation target, and Kaplan stressed that the central bank must demonstrate a strong commitment to hitting it. Markets have already started adjusting. The probability of rate hikes has climbed as inflation readings have come in hotter than anticipated.
What this means for crypto investors
When rates go up, the dollar typically strengthens. A stronger dollar historically puts pressure on risk assets across the board, and crypto sits at the far end of that risk spectrum.
The direct mechanism is straightforward. Higher rates increase the opportunity cost of holding assets that generate no yield. Bitcoin, Ethereum, and most tokens produce no cash flow. When a Treasury bill offers a more attractive return, capital tends to flow toward safety, especially institutional capital that allocates based on risk-adjusted return models.
For now, the actionable takeaway is to watch inflation data closely. Every CPI and PCE print between now and September will move markets, because each one either builds or erodes the case for a hike. Kaplan essentially handed traders a checklist: if inflation stays elevated, expect action. If it cools, the Fed can afford to wait.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
English (US) ·