Bitcoin Volatility Rises as Fed Rate Cut Hopes Fade

The cryptocurrency market faced heightened volatility last week after Bitcoin hit a new all-time high above $124,000 before retreating below $117,000.

The pullback came as hot inflation data reshaped expectations around the Federal Reserve’s rate cut trajectory, with investors now anticipating only two cuts this year instead of three.

Fed Rate Cut Hopes Fading

Markets entered August with strong optimism about monetary easing, but that sentiment quickly eroded after a series of inflation reports came in hotter than expected.

While July’s headline Consumer Price Index (CPI) initially suggested cooling inflation, deeper figures revealed a worrying acceleration in Core CPI and Supercore CPI, both signaling persistent price pressures in the services sector.

The situation worsened when the Producer Price Index (PPI) spiked 0.9% month-over-month, its largest increase in three years.

Economists attributed the surge to delayed tariff costs, which businesses can no longer absorb, instead passing them on to consumers.

Meanwhile, the Import Price Index also showed sharp gains, further complicating the inflation outlook.

Read Also: Bitcoin Eyes $137K as CPI Data Fuels Fed Rate Cut Hopes

These developments have made it harder for the Fed to justify additional rate cuts. As inflationary risks mount, the debate between a dovish approach and a hawkish stance has intensified within the central bank.

Bitcoin Reacts to Policy Uncertainty

Bitcoin has become increasingly sensitive to Fed policy shifts. When Treasury Secretary Scott Bessent floated the idea of a 50-basis-point cut last week, Bitcoin briefly surged past $124,000.

However, as soon as PPI data erased those expectations, the market reversed, sending Bitcoin tumbling.

This demonstrates how closely Bitcoin traders are watching macroeconomic indicators. A dovish Fed could unlock more liquidity and support higher risk assets, while a hawkish Fed might tighten financial conditions and put downward pressure on cryptocurrencies.

Altcoins mirrored this volatility. Ethereum briefly broke past resistance but ultimately failed to reach its all-time high, consolidating around $4,460.

Read Also: Fed’s Rate Cut: Expectations and Disappointments

Only Two Cuts Expected in 2024

According to the CME FedWatch Tool, investors now expect two Fed rate cuts this year, down from three. Fund flow data confirmed this sentiment shift, with Bitcoin and Ethereum ETFs recording net outflows after weeks of inflows.

Bond markets also appear skeptical about deeper cuts, with analysts warning that excessive optimism could result in a sharp market correction if the Fed maintains a cautious approach.

All Eyes on Jackson Hole

Attention now shifts to the Federal Reserve’s Jackson Hole Economic Symposium on August 21–23. Fed Chair Jerome Powell’s speech will be closely analyzed for signals on monetary policy.

Powell has previously used the event to hint at policy changes, making his upcoming remarks critical for both traditional and crypto markets.

Two dovish Fed officials, Vice Chair Michelle Bowman and Governor Christopher Waller, are also scheduled to speak, but it remains to be seen if recent inflation data will temper their calls for easing.

The release of July’s FOMC meeting minutes will further reveal how divided policymakers are between hawkish and dovish strategies.

Read Also: Why the Fed Will Not do a Rate Cut Anytime Soon

Conclusion

The fate of the next Fed rate cut remains uncertain. With inflation heating up and markets scaling back expectations, Bitcoin’s price will likely remain highly reactive to central bank decisions.

Whether Powell leans hawkish or maintains a dovish stance could determine if Bitcoin revisits its highs, or faces further correction.

Stay ahead of the latest crypto market trends and policy shifts by following the Bitrue Blog for timely updates and expert insights.

FAQ

Why did Bitcoin fall after hitting a new all-time high?

Bitcoin fell below $117,000 due to hotter-than-expected inflation data, which reduced expectations for aggressive Fed rate cuts.

How do Fed rate cuts affect Bitcoin?

Rate cuts generally increase liquidity, making risk assets like Bitcoin more attractive. Fewer cuts can weigh on crypto prices.

What is the difference between dovish and hawkish Fed policies?

Dovish policies favor lowering rates to stimulate growth, while hawkish policies focus on controlling inflation, often by keeping rates higher.

How many Fed rate cuts are expected this year?

Markets now expect only two cuts in 2024, down from the three anticipated earlier.

Why is Jackson Hole important for Bitcoin investors?

The Jackson Hole Symposium often provides hints about Fed policy direction. Powell’s speech could significantly impact Bitcoin and other cryptocurrencies.