The Trio of Weak Economic Reports Increases the Likelihood of Fed Cutting Interest Rates, But What About Bitcoin?

The main economic event of this week occurs on Friday when the U.S. government releases employment data for May. However, prior to that, there are three fairly important data points on Wednesday, all of which indicate unexpected weakness. First is the ADP private payroll report for May, which shows that only 37,000 jobs were added last month, much lower than the expectation of 115,000 and significantly lower than the weak 60,000 in April. This is the weakest ADP figure since March 2023. "ADP NUMBER HAS BEEN RELEASED", President Trump stated on Truth Social. "'Too late' Powell must CUT INTEREST RATES right now." Next is the ISM Services report for May, which reached 49.9 compared to the forecast of 52 and 51.6 in April. A figure below 50 indicates a contraction, and the May report is the first time in a year at that level. Finally, the US Federal Reserve released the Beige Book for May, showing that the economy is even weaker. "Economic activity has slowed slightly since the previous report," according to the survey. "Half of the Counties reported a slight to moderate decline in activity, three Counties reported no change, and three Counties reported slight growth... The outlook is still a bit pessimistic and uncertain, unchanged from the previous report. However, some County reports suggest the outlook has deteriorated." In summary, the latest data has caused the 10-year U.S. Treasury bond to drop by ten basis points to 4.36%, the lowest level in a month. It also has the rate of interest rate cuts in July increasing to 29% from 22% a week earlier, and the rate of one or more interest rate cuts in September rising to 76% from 58%. Where is Bitcoin? The slogan that bitcoin needs an easy Fed to recover may no longer be true, if it ever was. The world's largest cryptocurrency has surged nearly 50% from mid-April to a new all-time high two weeks ago even as a number of Fed officials have continuously stated that they see no need to cut interest rates. However, the softer monetary policy from the US central bank is unlikely to be harmful. At least as of today, bitcoin is not very impressed with the thought that rate cuts will come sooner than expected, continuing to trade very quietly around the level of 105,000. The government's jobs report on Friday could be the key. A worse-than-expected report could bring closer the prospect of the Fed reinforcing rate cuts or multiple cuts as early as this summer, turning the interest rate picture from unfavorable to favorable.

Economists forecast that the United States will add 130,000 jobs in May with the unemployment rate remaining stable at 4.2%. "The ADP report signals a real slowdown in labor demand, particularly among small and medium-sized enterprises (SME) which are modestly cutting jobs – significant because small and medium-sized enterprises typically account for about 2/3 of job growth," said Marc Ostwald, chief economist and global strategist at ADM Investor Services International, in an email to CoinDesk. "This is by no means surprising given all the policy uncertainty and above all the ambiguity." "I suspect that the tightening of immigration (legal and illegal) is shrinking the pool of skilled and unskilled labor that is very abundant, and competition is heating up," he continued. "On the margins, it creates additional inflationary pressure, in addition to tariffs and measures to secure the supply chain that will certainly increase companies' operating costs." Ostwald concluded: "The duration depends on how long the recession lasts, and the longer the duration, the greater the risk of mass layoffs. Besides highly specialized fields, this can significantly affect wage growth as job security will become a top concern for employees."