The Bitcoin Layer Bitcoin Drops as Yields Crash: What the Fed Will Do Next
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Aug 2, 2025 U.S. Treasury yields have plummeted due to weak employment data, leading to speculation about imminent Fed rate cuts. Delve into the implications of the declining two-year yield and the Fed's neutral rate dilemma. Explore how inflation trends are shifting policy discussions and what that means for Bitcoin. The latest moves in the dollar and signals from ISM data hint at recession risks, affecting Bitcoin's consolidation around $108,000. Finally, a deep dive into the TBL Liquidity Index reveals the new volatility driving risk asset repricing.
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Two-Year Yields Predict Fed Cuts
- Two-year Treasury yields below the Fed's policy rate signal market expectations for imminent rate cuts.
- A sharp intraday drop in two-year yields strongly indicates the Fed might cut rates soon.
Manufacturing Slowdown Signals Cooling Economy
- Slowing manufacturing and declining ISM employment index suggest a cooling economy.
- These marginal slowdowns may impact upcoming Federal Reserve decisions.
Fed's Neutral Rate Below Current Policy
- The Fed's neutral rate lies near 3.5%, below the current restrictive 4%+ policy rate.
- Sustained inflation normalization is prompting expectations for rate cuts to non-restrictive levels.