The Federal Reserve is stuck in the monetary policy equivalent of being told to speed up and slow down at the same time. Nearly half the central bank’s policymakers want to raise interest rates before the year is out, even as the latest jobs data suggests the labor market is starting to crack under existing pressure.

At the June FOMC meeting, the Fed held the federal funds rate steady at 3.50%-3.75%. But the updated dot plot told a more hawkish story: nine of 19 policymakers projected at least one rate hike by the end of 2026. For crypto markets already nursing a brutal drawdown, the signal landed like a cold shower.

A labor market that’s losing steam

The July 2 employment report threw a wrench into the rate-hike narrative. Payroll growth came in substantially below expectations for the prior two months, the kind of miss that forces traders to recalibrate in real time.

Markets slashed the probability of a July rate increase to below 20%, down from what had been a consensus leaning toward two hikes for 2026.

The Fed under new Chair Kevin Warsh is navigating terrain that doesn’t fit neatly into textbook frameworks. Inflation remains persistently above comfort levels, which normally calls for higher rates. But the labor market is softening, which normally calls for the opposite.

Two French economists have weighed in with a pointed assessment: the Fed will still need to raise rates this year. Their argument centers on the stickiness of inflation, suggesting that even a cooling job market won’t be enough to bring prices down without further monetary tightening. It’s a view that aligns with the hawkish half of the dot plot but runs counter to the story the employment data is telling.

Bitcoin’s $66K problem

Bitcoin declined from approximately $126,000 in late 2025 to around $60,000 by June 2026. That’s a drawdown of roughly 52%.

Higher interest rates, or even the credible threat of them, tighten liquidity across financial markets. When Treasury yields go up, the opportunity cost of holding a zero-yield asset like Bitcoin goes up with it. Capital that might have flowed into crypto instead parks itself in bonds, money market funds, or other instruments that suddenly look attractive again.

What this means for investors

With the federal funds rate at 3.50%-3.75% and potentially heading higher, investors can earn meaningful yield without taking on crypto-level volatility. That dynamic suppresses the marginal buyer who drove prices higher during easier monetary conditions.

The dot plot showing nine hawkish policymakers is notable, but it also means ten members did not project a hike. That’s a nearly even split, and a few more weak jobs reports could tip the balance.