May jobs report pushes Fed rate hike odds to 85%, hitting Bitcoin and gold

The May jobs report effectively ended any prospect of rate cuts in 2026, with futures markets pricing an 85% probability of a Fed hike before year-end.

The May jobs report extinguished lingering hopes for rate cuts, pushing CME FedWatch probabilities for a hike before December above 85% and triggering a simultaneous selloff in Bitcoin and gold.

"I am increasingly concerned that higher interest rates could be necessary later this year," Dallas Fed President Lorie Logan said in a June 3 speech in Texas, according to Reuters.

The U.S. added 172,000 nonfarm payrolls in May while the unemployment rate held at 4.3%, data from the Bureau of Labor Statistics showed June 10. The same day, the Consumer Price Index hit a three-year high of 4.2% year over year, with core CPI — which strips out food and energy — rising 2.9%. Bitcoin fell more than 3% to below $92,000, while spot gold dropped 1.8% to $2,310 an ounce, as the dollar strengthened and real yields rose.

The hawkish repricing carries broad implications for risk assets. Higher borrowing costs threaten to slow the artificial intelligence infrastructure build-out that has driven equity gains, while the opportunity cost of holding non-yielding assets like gold and Bitcoin increases. The FOMC's next meeting concludes June 17, and while a rate change is not expected at that session, traders now assign a 60% probability of a hike by October, per Reuters.

The shift in rate expectations marks a sharp reversal from earlier this year, when markets had priced in multiple cuts. The CME Group's FedWatch Tool, which analyzes 30-day Fed funds futures contract prices, now shows a 71% probability of a quarter-point increase to a target range of 3.75% to 4% by the December 2026 meeting, up from below 50% before the jobs report. The current federal funds rate stands at 3.5% to 3.75%, unchanged since the last cut in late 2025.

The May CPI print was the highest since April 2023, according to the Bureau of Labor Statistics. The headline figure of 4.2% is more than double the Fed's 2% target, while core CPI at 2.9% — the highest since September 2025 — removes the argument that inflation is transitory or energy-driven. The Iran conflict has pushed fuel prices sharply higher, and the risk is that these supply-side shocks spill into non-energy sectors through higher transportation and production costs.

New Fed chair tilts hawkish

The arrival of Kevin Warsh as Fed chair on May 15 adds a hawkish dimension to the outlook. During his previous tenure as an FOMC member from 2006 to 2011, Warsh consistently favored higher rates to suppress inflation, even as unemployment surged during the financial crisis. His appointment, replacing Jerome Powell, shifts the central bank's policy orientation toward tighter monetary conditions.

The last time the Fed faced a comparable inflation overshoot was in 2022, when the CPI peaked at 9.1% and the central bank delivered 425 basis points of hikes over seven months. While today's 4.2% reading is less severe, the combination of a tight labor market, energy-driven price pressures from the Iran conflict, and a hawkish chair creates a policy environment that looks more like 2022 than the easing cycle markets had anticipated.

For Bitcoin, the rate sensitivity reflects a broader liquidity squeeze. The cryptocurrency fell more than 3% on the data release, trading below $92,000, while gold dropped 1.8% to $2,310 an ounce. Both assets have historically rallied on expectations of looser monetary policy and sold off when those expectations reverse. The simultaneous decline suggests a broad-based risk reduction rather than asset-specific factors.

The S&P 500 rose a modest 0.6% for the week ending June 12 to close at 7,431.46, as the historic SpaceX IPO absorbed investor attention. But the index remains vulnerable to further repricing if rate hike expectations continue to firm. The Dow Jones Industrial Average and Nasdaq Composite also hit new highs during the period, though the divergence between equity resilience and the selloff in Bitcoin and gold highlights an uneasy tension in markets.

President Trump has publicly pushed for rate cuts, arguing that lower borrowing costs boost consumer and business spending. But the data leaves the Fed little room to comply. GDP growth reached 2% in 2025 and the International Monetary Fund expects it to rise to 2.4% in 2026 — hardly the kind of economic weakness that justifies monetary easing.

This article is for informational purposes only and does not constitute investment advice.