Fed Rate Hike Odds Surge as Recession Fears Fade, Inflation Stays Hot
US economists are dialing back recession fears, but inflation is proving stickier than expected. This shift means the Fed is less likely to cut rates soon, removing a key tailwind for risk assets like Bitcoin. Traders are now pricing in a higher chance of a hike, not a cut, at the next meeting.
US economists just slashed recession odds to 25%, the lowest since early 2025. But don't pop the champagne yet. They're also hiking inflation forecasts, meaning the Fed is stuck in a higher-for-longer rate environment. This kills the catalyst risk assets, especially Bitcoin, were banking on for a second-half recovery.
Job market views are improving, and economic growth forecasts are up. Yet, consumer prices are expected to climb 3.4% by year-end, with core PCE holding stubbornly high. "We're learning that there's more momentum in the economy... and inflation stays elevated," one consultant noted.
This macro backdrop is brutal for Bitcoin. Lower rates push capital into riskier assets; higher rates do the opposite. With safe assets paying more, money rotates out of volatile holdings first, and BTC is often first in line. A delayed cut means a key support is gone.
Traders are getting hawkish. CME FedWatch now shows a 34.2% chance of a hike at the July meeting, up from 18.2% last week, fueled by renewed geopolitical tensions. The Fed's own minutes reveal a split on the path forward, with many flagging inflation risks tied to AI spending.
Forget rate cuts for now. The Fed needs cooler data to reignite risk appetite. Until then, expect headwinds for crypto as capital seeks higher yields elsewhere.