Bank of America Warns of Fed Rate Hike Risk as Crypto Market Faces Pressure

Wall Street giant Bank of America has raised the risk of a Fed rate hike as the oil spike continues to pressure the global markets, including the crypto market. Inflation and recession fears are also growing, with developments like this likely to prompt a hike if the U.S.-Iran conflict drags on.

Bank of America Outlines Factors That Could Lead To Fed Rate Hike

The Wall Street giant said that a stable labor market, Jerome Powell remaining as Fed chair, and sustained oil shock due to the Iran war could lead to a rate hike. The bank added that this hike becomes more likely if oil prices hold steady above $80.

It is worth noting that Powell, during his FOMC press conference earlier this week, said there won’t be rate cuts if they don’t see progress on inflation. However, he suggested that a Fed rate hike is not yet on the cards, stating that this isn’t the base case for most officials.

The Fed chair also revealed that he could remain in office until Kevin Warsh is confirmed, which is why Bank of America warns that this is one of the conditions that could lead to a rate hike. A delay in Warsh’s confirmation means Powell could preside over the June FOMC meeting, which could be consequential, especially if the war in Iran drags on till then.

As CoinGape reported, crypto traders have priced out rate cuts this year amid inflation risks stemming from the war in Iran. Polymarket data shows a 35% chance that the Fed makes zero cuts this year.

Crypto Traders Increase Bets On A Hike

The odds of a Fed rate hike have also climbed to 19% from as low as 8% when the war first began. With the risk of a Fed rate hike growing amid inflation and recession fears, the crypto market is under constant pressure, with Bitcoin struggling to stay above $70,000.

The crypto market saw a relief rally earlier today, but is now declining again amid a broad market sell-off. The total crypto market cap is down from an intraday high of $2.4 trillion to $2.37 trillion.

Meanwhile, despite current market fears, Fed Governor Chris Waller, in a CNBC interview today, downplayed the possibility of a Fed rate hike. He opined that there is no need to consider raising interest rates.

Waller, known as one of the most dovish Fed officials, voted to hold rates steady at the March FOMC meeting. He explained that he was initially in favor of cutting rates due to the weak February jobs report, but that rising inflation risks and geopolitical uncertainty made him support the decision to hold rates.

The Fed Governor added that it is best to wait and see how the current macro situation evolves before deciding on rate cuts later this year. Crypto traders cut to increase bets on a prolonged war, which could further strengthen the case for a Fed rate hike. Polymarket data show the odds of a U.S.-Iran ceasefire have dropped to 42% as the war escalates.