Does the Fed Need to Cut Now? Bitcoin Crumbles Back Below $113K After ISM Services PMI
Recent economic indicators paint a concerning picture, raising questions about the Federal Reserve’s next move. Friday’s shocking downward revisions to jobs growth, which triggered a crypto market slump, are compounded by a weakening trend in the ISM Services PMI. July’s reading of 50.1 significantly undershot expectations of 51.5, marking the third consecutive month of softening economic activity. May’s PMI was 49.9, and June’s was 50.8, indicating a substantial slowdown.
Adding to the worry is a stagflationary signal within the report: the Prices Paid subindex surged to a cycle high of 69.9. One respondent attributed rising costs to tariffs, stating that increased expenses for equipment and supplies are forcing project postponements. This combination of slowing growth and rising prices negatively impacted both crypto and traditional markets. Bitcoin fell nearly 2% in 24 hours, dropping from above $114,000 to $112,800, while the Nasdaq reversed earlier gains to close down 0.5%.
Economist Mark Zandi highlighted the significant revisions to jobs data, suggesting the economy is at an inflection point, possibly a recession. He cites flatlined consumer spending, contracting construction and manufacturing sectors, and impending job losses as evidence. With inflation rising, he questions the Fed’s ability to intervene effectively.
However, Lacy Hunt and Van Hoisington of Hoisington Investment Management advocate for immediate Fed action. They view the inflationary impact of tariffs as a temporary, first-round effect, emphasizing the far more significant second, third, and subsequent rounds of contractionary consequences. They urge the Fed to adopt an accommodative policy swiftly, warning against delaying action due to the looming contraction in global economic activity. The confluence of these factors suggests a growing urgency for decisive monetary policy intervention.
