Goldman Sachs says a Federal Reserve interest-rate hike in September is now “very unlikely.” The change in outlook is good news for bitcoin because lower rate-hike expectations can improve investor confidence in riskier assets.

Bitcoin was trading near $63,500, up about 1% on the day. However, the scarce digital asset has remained stuck between $62,000 and $66,000 for more than a month. Investors are now watching the Federal Reserve closely. They want to know whether the central bank will keep interest rates unchanged or decide to raise them again.

Goldman Sachs Chief Economist Jan Hatzius said recent economic data has made a September rate hike much less likely. The bank pointed to weaker retail sales, softer employment data and slowing inflation. These numbers suggest that the US economy may not need another rate increase.

“Under our baseline economic forecasts, the inflation news is more likely to improve further than to deteriorate anew as the year progresses,” Hatzius wrote in a note to clients. He also said, “We still think market pricing for the funds rate is too hawkish.”

This means Goldman Sachs believes investors are still expecting the Federal Reserve to keep monetary policy tighter than necessary.

CME FedWatch data showed that traders were pricing in about a 30.6% chance of a 25-basis-point rate hike in September.

At the same time, the market was giving the Fed about a 69.4% chance of leaving interest rates unchanged. If the Fed raises rates, the target range would move from 3.50%-3.75% to 3.75%-4%. The odds of a September hike have fallen as investors have received weaker economic data and signs that inflation is cooling.

Interest rates can have a major effect on bitcoin and other assets that are considered “risky”. When rates rise, borrowing becomes more expensive and financial conditions become tighter.

Investors may then become less willing to put money into assets such as bitcoin. This was clearly seen during the Fed’s aggressive rate increases in 2022. Bitcoin suffered a major decline during that period.

Lower rates, or expectations of lower rates, can have the opposite effect. Easier financial conditions can encourage investors to take more risk. That is why bitcoin traders often pay close attention to Federal Reserve decisions and comments from Fed officials.

Despite the more positive rate outlook, bitcoin has not yet made a major move higher.
The digital asset recently fell below $63,000 before recovering. It has been trading inside the $70,000-$60,000 range that has controlled its price for months.

The latest Goldman Sachs assessment could help improve market sentiment, but it does not guarantee that bitcoin will rise.

Bitcoin can also react to other factors, including inflation data, employment reports, Treasury yields, the US dollar and overall investor demand for riskier assets.