Wall Street’s conviction that the Federal Reserve would raise rates at the end of July is fading fast. According to CME FedWatch futures and Kalshi prediction markets, the probability of a hike at the July 29 FOMC meeting has fallen from around 40% earlier this month to a range of 9% to 36%, depending on the platform.

Softer job data appears to be the primary catalyst behind the recalibration. Swaps markets now reflect less than a 20% chance of a July hike, a steep decline from the roughly 40% odds priced in just weeks ago.

May CPI came in at 4.2%, which initially stoked fears that the Fed under Warsh’s leadership would need to continue tightening. But labor market softness has a way of complicating that instinct, making the case for aggressive tightening harder to make even with sticky consumer prices.

Kalshi’s broader odds for any rate hike in 2026 still sit at 54% as of July 9, suggesting traders haven’t abandoned the idea of tighter policy entirely. They’ve just pushed the timeline out.

Bitcoin has been trading between $60,000 and $63,000 in early July, a range that reflects the market’s uncertainty about where macro policy is headed. Higher interest rates strengthen the dollar and increase the opportunity cost of holding non-yielding assets like Bitcoin and Ethereum. When a Treasury bill pays you a competitive return, the argument for parking capital in volatile digital assets gets weaker.

The next major catalyst arrives on July 14, when fresh CPI data drops. If inflation shows signs of cooling from that 4.2% May reading, it could reinforce the current dovish shift in rate expectations and potentially push Bitcoin above its recent trading range. A hot CPI print would snap sentiment right back, with Kalshi odds for a 2026 hike already at 54%.

The smart money is watching the spread between CME FedWatch probabilities and Kalshi odds as a real-time gauge of institutional versus retail sentiment. Right now, the gap between 9% and 36% across platforms suggests meaningful disagreement about the Fed’s next move.