Trio of Soft Economic Reports Boost Fed Rate Cut Odds, but What About Bitcoin?
This week’s crucial economic indicator is Friday’s U.S. May employment data release. However, Wednesday yielded three significant data points signaling unexpected economic weakness, potentially influencing the Federal Reserve’s monetary policy decisions and subsequently impacting Bitcoin’s trajectory.
The ADP private payrolls report for May revealed only 37,000 jobs added, drastically below the projected 115,000 and April’s already weak 60,000. This represents the lowest figure since March 2023, indicating a significant slowdown in job growth.
Further underlining the economic softening, the May ISM Services report registered 49.9, falling below the expected 52 and April’s 51.6. A reading below 50 signifies contraction, marking the first time this has occurred in a year.
The Federal Reserve’s May Beige Book corroborated this weakness, stating that economic activity had slightly declined since the previous report. Half of the districts reported slight to moderate declines, while the outlook remained slightly pessimistic and uncertain.
This confluence of weak data sent the 10-year U.S. Treasury note down ten basis points to 4.36%, its lowest in a month. Market expectations for a July rate cut increased to 29% from 22%, and the probability of one or more cuts by September rose to 76% from 58%.
The prevailing assumption that Bitcoin requires an accommodative Fed for substantial growth may be challenged. Bitcoin rallied significantly from mid-April despite repeated assertions from Fed officials that rate cuts were unnecessary. Nevertheless, a more lenient monetary policy would likely be beneficial. Currently, Bitcoin is trading around the $26,000 level, seemingly unmoved by the increased likelihood of imminent rate cuts.
Friday’s employment report holds significant weight. A weak report could solidify expectations of a Fed rate cut this summer, potentially shifting the interest rate environment from a headwind to a tailwind for Bitcoin. Economists forecast a 130,000 job increase in May, with the unemployment rate remaining at 4.2%.
