Bitcoin declined Friday as Treasury yields moved higher, but the market’s reaction to the latest jobs data may have been more hawkish than the actual shift in Fed expectations suggests.
The stronger-than-expected employment report has renewed calls for the Federal Reserve to raise rates at its September meeting. However, interest-rate markets have not significantly increased the probability of such a move.
Traders now see a 58% chance of a 25-basis-point hike, which would lift the Fed’s benchmark rate to a 3.75%-4% range, according to the CME FedWatch Tool.
That probability is broadly unchanged from a week earlier, when markets were still absorbing Fed Chief Kevin Warsh’s hawkish Jackson Hole comments. This suggests investors with direct exposure to monetary-policy outcomes have not materially increased their bets on a September hike.
The contrast between market positioning and the broader narrative is notable. While analysts and social media commentators have become more convinced that the Fed could tighten policy, futures traders remain relatively cautious.
Friday’s price action appeared considerably more dramatic. Bitcoin dropped from roughly $81,300 to $78,700 within hours, while the two-year Treasury yield climbed from 4.36% to 4.42%. The two-year note is closely watched because it tends to respond quickly to changing expectations for Fed policy.
Despite those moves, the limited change in rate-hike pricing suggests the initial market reaction may have overstated the significance of the jobs report.
A September hike is therefore still a realistic possibility, but it should not be viewed as a certainty. The outlook could change after the Sept. 11 inflation figures, particularly if the data comes in weaker than economists anticipate.
Some market observers have also questioned whether higher rates would be appropriate during an oil-price shock. They argue that additional tightening in such an environment could worsen economic conditions rather than provide a meaningful benefit.
The Federal Reserve will announce its next interest-rate decision on Sept. 16.
