Fed Rate Cut Probability Drops Below 5%—What Does This Mean for Crypto Markets?

According to the latest data from the CME FedWatch Tool, the probability of the Fed cutting interest rates in July has sharply decreased to below 5%, amid better-than-expected employment reports.

This change could be a challenge for the cryptocurrency market. As the likelihood of low interest rates diminishes, cryptocurrencies may become less attractive to investors.

Cryptocurrencies Face New Risks as Fed's Interest Rate Cut Probability Decreases

The US June employment report, published by the Labor Statistics Bureau, showed the unemployment rate dropping to 4.1%, from 4.2% in May and lower than the 4.3% forecast.

"The US unemployment rate dropped to 4.1% in June, the lowest since February. Still much lower than the historical Medium of 5.7%," Charlie Bilello wrote.

Employers nationwide added 147,000 jobs in June. This number aligns with the Medium number of jobs added monthly in the previous year (146,000).

Industries with job growth were state government jobs and healthcare. In contrast, the federal government reduced jobs.

"92% of the 147,000 jobs reportedly created in June were in government, healthcare, or social services. The manufacturing sector continues to lose jobs. These non-manufacturing jobs increase our trade deficit, leading 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 quickly. After the report was released, the 10-year Treasury bond yield rose to 4.36%. But why did this happen?

Because the economy is performing well, investors are less worried about the future and ready to invest in safer options, like US government bonds. When more people buy bonds, their interest rates (yields) increase.

Moreover, these strong economic indicators suggest the Federal Reserve may have fewer reasons to cut interest rates in July. The CME FedWatch Tool illustrated this change. The probability of a rate cut in July dropped to 4.7%, from the previous 25%.

"The Fed's rate cut probability has collapsed — from 25% to below 5% overnight. Why? Tariff-driven inflation and surprisingly strong employment reports are keeping the Fed still... temporarily. No cut = risky assets remain cautious," a cryptocurrency educator, CryptosRus, posted.

Since December, the Federal Reserve has kept interest rates stable between 4.25% and 4.5%. This has attracted criticism from President Trump, who even threatened to fire Fed Chairman Jerome Powell. However, Powell has maintained his stance.

Meanwhile, the change in interest rate expectations could create challenges for the cryptocurrency market. Higher interest rates make traditional investments like bonds more attractive, potentially reducing attention from risky assets like cryptocurrencies. Consequently, decreased demand could affect prices.

Despite challenges in the current economic environment, there are many positive factors for the market, especially for Bitcoin. According to CryptosRus, the global money supply recently increased to $55.48 trillion. Moreover, the USD has performed its worst in the first half (H1) of the year since 1973.

According to Kalshi, a prediction platform, the total US debt is expected to reach a staggering $40 trillion this year.

Therefore, increasing national debt and concerns about inflation and government spending could make BTC an increasingly attractive hedge.

"Meanwhile, Bitcoin's chart seems to be targeting $170,000 — and it knows what's coming. Fiat is expanding. BTC is targeting escape velocity," CryptosRus stated.

As traditional financial systems face pressure, Bitcoin and other digital assets could be an attractive option for investors seeking diversification and protection against economic uncertainty.