Bitcoin traders are cheering a fresh round of soft economic data. The odds of a Federal Reserve rate hike in October have fallen below 50%, and that is pulling yields down across the board.
The trigger was a new inflation reading from the Bureau of Labor Statistics. Traders had already been cutting bets on a hike after John Williams, president of the New York Fed, delivered a dovish speech yesterday. Now the data has confirmed their fears — or their hopes, depending on which side of the trade you sit on.
The Numbers Behind the Move
CME FedWatch, which tracks trader positioning in short-term interest rate futures, puts the odds of a rate hike at the Fed’s Oct. 28 meeting at 47.1%. That is a sharp drop from where the market sat just two days ago, when the odds stood at 70%.
The change comes from two directions. First, Williams’ speech set a dovish tone for the coming meeting. Second, the inflation data itself came in softer than expected.
What the Inflation Data Actually Showed
The data released today covers the PCE price measure, which is the Bureau of Labor Statistics’ primary gauge of consumer prices. The bureau recently changed the methodology for how it measures certain components of that gauge, and the source notes that this could have been behind the inflation beat.
Traders had been watching the odds closely since the speech. The gap between the 70% peak and the current 47.1% is notable, and the market moved fast.
How Bitcoin Responded
The drop in rate-hike odds is good news for bitcoin investors. Lower yields mean lower borrowing costs, and bitcoin has gained ground in response to the news.
What the Methodology Change Means
The methodological shift in how the PCE price data is compiled is worth watching. Changes to official statistics can have lasting effects on how markets interpret future readings.
Whether the shift was behind today’s inflation beat remains an open question. The source notes the possibility, but does not settle it.
The Path to October
The Fed meets on Oct. 28, and the market is now pricing in odds of a hike below 50%. That is a pivot from where the conversation was two days ago.
| Date | Event | Odds of Hike |
|---|---|---|
| Today | PCE price data released | Below 50% |
| 48 hours ago | Odds stood at 70% | 70% |
| Oct. 28 | Fed meeting | Not stated |
The path forward is uncertain. Williams’ dovish speech set the stage, and the data confirmed the market’s suspicions. Whether the Fed follows the data or bucks the odds remains to be seen.
For bitcoin traders, the lesson is simple: when rate-hike odds dip, the currency gains. The move from 70% to 47.1% is a straightforward market adjustment, not a surprise.
The methodology question will linger. If the shift in how PCE prices are measured explains the gap, today’s reading may not reflect actual easing. If it does not, then the data point toward genuine relief in price pressures.
Either way, the market has spoken. Traders who had been betting on a hike are cutting their exposure, and bitcoin has responded accordingly.
The path to October now runs through a tighter yield curve than anyone expected just two days ago.
See the a run of 22 images at CoinDesk.
Get the Notebook.
The day's best stories and every fresh verdict, in plain English, in your inbox by seven. One email a day, no more.