According to the latest CME FedWatch Tool data, the probability of a Fed rate cut in July has dropped dramatically to below 5%, amid a better-than-expected job report.
This shift could present a challenge for the crypto market. As the likelihood of lower interest rates diminishes, cryptocurrencies could potentially become less attractive to investors.
Crypto Faces New Risks as Fed Rate Cut Odds Fall
The June US jobs report, released by the Bureau of Labor Statistics, revealed that the unemployment rate fell to 4.1%, down from 4.2% in May and lower than the forecasted 4.3%.
“The US Unemployment Rate moved down to 4.1% June, the lowest since February. Remains well below the historical average of 5.7%,” Charlie Bilello wrote.
Employers nationwide added 147,000 jobs in June. This is consistent with the average number of jobs added each month in the previous year (146,000).
The sectors that saw job growth were state government jobs and health care. The federal government, on the other hand, experienced job cuts.
“92% of the 147,000 jobs supposedly created in June were in government, health care, or social services. Manufacturing continued to lose jobs. These non-productive jobs raise our trade deficits, and lead to more government debt and higher inflation. Investors won’t be fooled forever,” economist and Bitcoin-critic Peter Schiff wrote.
Despite the criticism, the bond market reacted swiftly. Following the report’s release, the 10-year Treasury yield climbed to 4.36%. But why did this happen?
Because the economy is doing well, investors are less worried about the future and are willing to invest in safer options, like US government bonds. As more people buy bonds, the interest rates (yields) on them go up.
Moreover, these strong economic indicators suggested that the Federal Reserve may have fewer reasons to cut interest rates in July. The CME FedWatch Tool illustrated this shift. The probability of a rate cut in July has dropped to 4.7%, down from a 25% chance of a cut.
“Odds of a July Fed rate cut have collapsed — from 25% to under 5% overnight. Why? Rising tariff-driven inflation and a surprisingly strong jobs report are keeping the Fed on hold… for now. No cut = risk assets stay cautious,” a crypto educator, CryptosRus, posted.
Since December, the Federal Reserve has kept interest rates steady between 4.25% and 4.5%. This has attracted backlash from President Trump, who even threatened to fire Fed Chair Jerome Powell. However, Powell has stood his ground.
Meanwhile, this shift in rate expectations could create headwinds for the crypto market. Higher interest rates make traditional investments, like bonds, more appealing, potentially diverting attention away from riskier assets such as cryptocurrencies. Thus, the decrease in demand could weigh on the prices.
Despite the challenges in the current economic environment, several bullish catalysts remain for the market, especially Bitcoin. According to CryptosRus, the global money supply has recently surged to $55.48 trillion. Moreover, the US dollar had its worst performance in the first half (H1) of the year since 1973.
According to Kalshi, a prediction platform, total US debt is projected to reach a staggering $40 trillion this year.
Thus, the mounting national debt and concerns over inflation and government spending may make BTC an increasingly attractive hedge.
“Meanwhile, Bitcoin’s chart looks locked onto $170,000 — and it knows what’s coming. Fiat is expanding. BTC is eyeing escape velocity,” CryptosRus stated.
As traditional financial systems face pressure, Bitcoin and other digital assets could present appealing options for investors seeking diversification and protection against economic instability.
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