PGIM, the asset management arm of Prudential Financial, now expects the Federal Reserve to deliver three interest-rate hikes in 2026 before pivoting to cuts in 2027. The revised forecast marks a sharp reversal from PGIM's earlier call and signals a bumpy road ahead for risk assets — including crypto.
The new forecast
The firm projects three quarter-point increases this year, a timeline that would push the federal funds rate higher even as inflation shows signs of cooling. Then, in a notable about-face, PGIM sees the Fed cutting rates in 2027, unwinding some of that tightening.
PGIM didn't specify exact timing for the moves, but the mere shift in outlook is enough to unsettle markets. The forecast suggests investors should brace for a period of reassessment — and that often means volatility.
Why crypto feels the heat
Rate hikes tend to siphon liquidity out of speculative corners of the market. Digital assets, which have spent much of 2026 trading in a range, are especially sensitive to changes in the cost of capital. Higher rates make risk-free yields more attractive, pulling money away from coins and tokens.
The expected cuts in 2027 could flip that dynamic, but only if the Fed actually follows through. For now, the outlook is uncertain. Traders face a tug-of-war: the near-term pain of tighter policy against the promise of relief next year.
A fragile moment for markets
PGIM's forecast arrives at a time when crypto correlations with equities remain high. Bitcoin and ether have tracked the S&P 500's moves for months, meaning a rate-driven selloff in stocks would likely spill over. The same goes for bonds — a rout in government debt could tighten financial conditions further.
The firm explicitly flagged potential volatility across equities, bonds, and crypto as investors digest the new trajectory. That's a broad warning, but for crypto, the timing isn't great. The market has been waiting for a catalyst to break out of its sideways grind — a hawkish Fed isn't the one anyone wanted.
What comes next
All eyes turn to the Fed's next policy meeting. If the central bank signals alignment with PGIM's view — or moves sooner than expected — volatility could spike. If it pushes back, crypto might catch a bid. Either way, the forecast has reset expectations, and the market will spend the rest of 2026 trying to guess which way the wind blows.
