- Fed rates remain near 4% as Trump pushes for 1%, creating a major policy divide.
- Lower rates support Bitcoin, but rising inflation and bond yields create risks.
- Bitcoin traders are watching inflation, Treasury yields, the dollar, and the September 30 PCE report.
Bitcoin is facing mixed signals from U.S. interest-rate policy. On September 16, the Federal Reserve raised interest rates by 0.25 percentage points to 3.75%-4%.
At the same time, President Donald Trump has called for interest rates to fall to 1% or lower. That creates a large gap between Trump’s preferred rate and the Fed’s current rate. Bitcoin traders are watching whether rates eventually fall or remain high because of inflation.
Trump Wants Much Lower Interest Rates
Trump again called for much lower interest rates after the Fed’s decision. He said the U.S. has strong credit, investment is growing, and lower rates would help the economy and trade. Cutting rates from 3.75%-4% to 1% would represent a reduction of about 275-300 basis points.
For Bitcoin, lower rates are generally positive because cheaper borrowing encourages investors to take more risk. Lower U.S. interest rates also reduce the returns available from dollar-denominated investments, putting downward pressure on the dollar. These conditions have historically supported assets such as Bitcoin and gold.
Why the Fed Is Raising Rates
Notably, the Fed is moving in the opposite direction as inflation remains elevated. In July, headline inflation stood at 3.7%, while core inflation came in at 3.3%. The next inflation report, covering August, is due on September 30.
The Fed expects inflation to remain elevated in 2026 before gradually moving closer to 2% in the following years. With inflation still a concern, Fed officials have said they will keep rates high or raise them again if future data shows that inflation is not slowing.
Would 1% Interest Rates Push Bitcoin Higher?
If interest rates eventually fall to 1% without seriously damaging the economy, Bitcoin stands to benefit. Lower rates make borrowing cheaper and encourage investment in riskier assets such as Bitcoin. Lower returns on government bonds also make alternative assets more attractive.
A weaker dollar adds another potential tailwind. If investors expect the dollar to lose value, demand for scarce assets such as Bitcoin and gold can increase.
Lower rates alone do not guarantee a Bitcoin rally. The reason for the rate cuts matters, as does investor confidence that the lower-rate environment will last.
Bond Market Could Complicate the Outlook
Large rate cuts while inflation remains elevated could complicate the outlook. In such a scenario, investors may demand higher returns to hold long-term U.S. government bonds, pushing yields higher even as the Fed lowers short-term rates.
The 10-year Treasury yield briefly moved above 5% after the Fed’s decision, while the 2-year yield reached about 4.7%.
If long-term yields continue rising, borrowing costs across the economy could stay elevated, offsetting some of the impact of lower policy rates. That dynamic could limit upside for Bitcoin and other risk assets, even in a lower-rate environment.
Trump’s $1.5 Trillion Trade Claim Needs Context
Meanwhile, Trump has said that stopping trade with countries that run trade deficits with the U.S. would bring in $1.5 trillion each year. A trade deficit does not work like a company losing money. It simply means the U.S. buys more from a country than it sells to that country.
Trade also connects to spending, saving, investment, and capital flows between countries. Ending those trade relationships would not automatically create $1.5 trillion in new income.
What Bitcoin Traders Should Watch
Bitcoin traders should monitor:
- Bitcoin’s price
- Gold
- The U.S. dollar
- 2-year and 10-year Treasury yields
- Inflation expectations
- The next PCE inflation report
The dollar strengthened after the Fed raised rates, while Bitcoin was trading above $76,000 on September 17. The September 30 PCE report will be important because it will show whether inflation is cooling enough to support future Fed rate cuts.
For Bitcoin, the bigger question is not simply 1% rates versus 4% rates. The key issue is why rates are falling. Lower rates combined with falling inflation and lower long-term bond yields create a very different environment from lower rates combined with rising inflation and a weakening bond market.
Related: BTC Dominance Turns Bullish as TOTAL2 Weakens: Is Liquidity Rotating Into Bitcoin?
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
