Fading Fed Rate Cut Hopes: Is a Bitcoin Price Drop Next?

Welcome to the Asia Pacific Morning Brief—your essential digest of overnight crypto developments shaping regional markets and global sentiment. Monday’s edition is last week’s wrap-up and this week’s forecast, brought to you by Paul Kim. Grab a green tea and watch this space.

Bitcoin fell below $117,000 after hitting a new all-time high above $124,000, as hot inflation data reduced expectations for Federal Reserve rate cuts. Markets now expect only two rate cuts this year instead of three.

Fed Rate Cut Hopes Fading

The cryptocurrency market experienced significant volatility last week, driven by a series of unsettling macroeconomic indicators that have dampened expectations for aggressive interest rate cuts by the Federal Reserve. After surging to a new all-time high above $124,000, Bitcoin saw its price retreat, at one point falling below $117,000.

The downturn in sentiment follows a string of inflation reports that came in hotter than anticipated, casting doubt on the likelihood of continued monetary easing from the U.S. central bank.

Last week’s most critical economic report arrived on Tuesday with the release of the July Consumer Price Index (CPI). The market reacted positively because the headline CPI was lower than Wall Street’s expectations. However, a closer look at the details reveals that the situation was not good.

Tariff Costs Finally Hit Consumer Prices

The details of the CPI report showed a notable acceleration in both Core CPI (which excludes food and energy) and “Supercore” CPI (which measures services inflation ex-housing). The steep ascent of Supercore CPI since April, particularly, points to rapidly accelerating service sector inflation.

The bigger shock was Thursday’s release of the July Producer Price Index (PPI), which measures inflation at the wholesale level. The PPI unexpectedly surged by 0.9% month-over-month, a record spike and the first of its kind in three years. This was a surprise, as producer prices had remained relatively stable in May and June, even as the US “tariff war” intensified.

Trade specialists interpret this latest surge as a delayed reaction to US tariff policy. While companies initially appeared to absorb the costs by building inventories, the July data suggest they can no longer bear the financial strain. The signal is that businesses are now passing these tariff-related cost increases on to the next production stage, with services inflation again being a primary driver. In particular, the rise in prices within the services sector was also prominent in the PPI.

Perhaps the most alarming indicator for the market was the July US Import Price Index. According to conventional economic theory, tariffs typically drive import prices higher. The Trump administration cited the muted May-June effects to argue that its trade policies avoided inflation.

However, July’s sharp increase in import prices suggests a critical turning point. This implies that import and export companies, which have been absorbing tariff costs, are now passing them on to consumers.

The Federal Reserve has expressed significant concern about tariffs’ inflationary potential in its last two Federal Open Market Committee (FOMC) meetings. If import prices continue to climb in August due to trade policy, the Fed’s further rate cuts could become increasingly difficult to justify.

Rate Cut Expectations Scaled Back from Three to Two

The shifting macroeconomic landscape directly affects Bitcoin’s price and market performance. The shifting macroeconomic landscape directly affects Bitcoin’s price and market performance.

This correlation was on full display Thursday, when Bitcoin’s price soared past $124,000 after Treasury Secretary Scott Bessent mentioned the possibility of a 50-basis-point rate cut during a media interview in September. The PPI report release immediately wiped out those earlier market gains. Bessent retracted his comments and recommended a more conservative 25-basis-point rate cut.

Market expectations have since been recalibrated. According to the CME FedWatch Tool, as of Friday, investors are now pricing in only two rate cuts for the remainder of the year, down from three. Fund flow data also shows this significant shift in investor sentiment.

On Friday, around the time of the import price index release, there was a surge in Bitcoin deposits on the Binance exchange. A sudden increase in Bitcoin deposits is generally considered a movement of funds for selling. After recording net inflows all week, Bitcoin and Ethereum spot ETFs experienced a net outflow.

Altcoins have not been immune. Last week, the world’s second-largest cryptocurrency, Ethereum, broke its all-time high on Monday. However, it failed to surpass its all-time high in USD ($4,860) throughout the week. As of 00:00 UTC on Monday, Ethereum trades at around $4,460.

All Eyes on Jackson Hole for Powell’s Next ‘Hint’

What seemed like a certainty just last week—three Fed rate cuts this year—has now entered the realm of uncertainty.

While deteriorating July US employment data had built a strong case for easing, the resurgence of inflation has given the Fed pause. The decision-making now falls squarely on the shoulders of Fed Chair Jerome Powell.

The financial world will be looking for clues at the Federal Reserve’s annual Jackson Hole Economic Symposium, which runs from August 21 to 23. The prestigious event, hosted by the Federal Reserve Bank of Kansas City, brings together central bankers from around the globe.

Chair Powell will deliver a speech on US monetary policy at 02:00 am UTC on Friday. He mentioned the Fed’s monetary policy shift at the Jackson Hole meeting. A well-known example is when he alluded to a 50 basis point cut in his Jackson Hole speech last September.

Two prominent ‘doves’ will also be speaking this week: Vice Chair Michelle Bowman (Wednesday) and Governor Christopher Waller (Thursday). Both have previously advocated for preemptive rate cuts, citing concerns over a slowing economy and a weakening labor market. Investors will be watching closely to see if the recent inflation data has tempered their dovish stance.

A few high-impact macroeconomic indicators will be released this week. However, the July FOMC meeting minutes, which will be released on Wednesday, could significantly impact the market, depending on their contents.

If other FOMC members also supported rate cuts alongside Bowman and Waller, markets could revive cut expectations. This scenario could bring another round of volatility to Bitcoin markets. We wish all our readers a successful week of investing.