Surprise CPI drop ends July Fed hike bets, boosts Bitcoin
A sharper-than-expected decline in US consumer prices has effectively ruled out a July interest rate hike, triggering a broad rally across equities, bonds and digital assets.
US consumer prices fell by 0.4% in June, a significant deviation from the 0.1% decline forecast by economists and a sharp reversal from May's 0.5% increase. The core measure, which strips out volatile food and energy costs, was completely flat against expectations of a 0.2% rise. Year-over-year inflation slowed to 3.5%, while the core rate decelerated to 2.6%.
The data delivers a decisive blow to mounting speculation that the Federal Reserve would tighten monetary policy at its late-July meeting. Just a day prior, Fed Governor Chris Waller signaled he would back an immediate rate hike if core inflation failed to cool. That rhetoric had pushed the probability of a July increase to 42%, up from 8% a month ago according to CME FedWatch. Today's figures render those bets virtually obsolete.
The swift repricing in the bond market highlights how dramatically the inflation print altered the policy outlook. Treasury yields dropped sharply across the curve, with the two-year yield falling seven basis points to 4.19% and the 10-year yield shedding five basis points to 4.56%. Equity futures surged in tandem, led by the Nasdaq 100, which climbed 1.25%.
Digital assets capitalized on the dovish shift. Bitcoin extended earlier gains to trade at $63,400, marking a 2% increase over the past 24 hours. The price action builds on an underlying recovery in crypto market infrastructure. Centralized exchange volumes rose in June for the first time in five months, with spot trading climbing 15.3% to $1.11 trillion.
A notable driver of that June activity was real-world asset perpetual volumes, which surged to a record $311 billion. This structural growth in tokenized asset trading coincides with a macroeconomic environment that is suddenly far more accommodating for digital assets than it was just 24 hours ago.
Investors will now look to Capitol Hill for further clarity. Fed Chairman Kevin Warsh is scheduled to begin his testimony on the state of the economy before Congress shortly, where he will likely be pressed on the central bank's updated trajectory.
