Bitcoin pulled back Friday as Treasury yields climbed, but the market’s hawkish reaction may have gone further than the underlying rate expectations justify.
The latest jobs report has strengthened the case for the Federal Reserve to raise interest rates at its September meeting. Still, futures-market pricing suggests traders have not made a major adjustment to their outlook.
The CME FedWatch Tool currently shows a 58% probability of a 25-basis-point rate increase, which would take the Fed’s benchmark target range to 3.75%-4%.
That figure is little changed from last week, when markets were responding to Fed Chief Kevin Warsh’s hawkish comments at Jackson Hole. Despite the stronger employment data, investors with direct exposure to interest-rate outcomes have not substantially increased their rate-hike bets.
The divergence between market chatter and actual positioning is notable. Analysts and social media discussions have increasingly leaned toward a hawkish Fed, but futures markets remain relatively cautious.
Friday’s market moves painted a more aggressive picture. Bitcoin dropped from about $81,300 to $78,700 in just a few hours, while the two-year Treasury yield rose to 4.42% from 4.36%. Because the two-year yield closely tracks expectations for monetary policy, the jump signaled a stronger reaction to the jobs data.
Even so, the relatively stable rate-hike probability suggests the move may have been exaggerated.
A September hike remains firmly in play, but it is far from guaranteed. The outlook could shift again after the Sept. 11 inflation report, particularly if consumer-price data comes in below expectations.
There is also debate over whether tighter monetary policy would be appropriate during an oil shock. Some analysts argue that increasing borrowing costs under such conditions could inflict more economic damage than it prevents.
The Fed is scheduled to announce its next policy decision on Sept. 16.
