Fed Governor Suggests Rate Cut as Early as Next Month

The Federal Reserve's decision to hold interest rates steady at 4.25% has been widely anticipated by investors. The next monetary policy meeting is scheduled for July 30, but the Fed could act earlier if a major disruption occurs. Fed Governor Christopher Waller suggested that policymakers should consider lowering interest rates as early as next month, citing that inflation is not posing a major economic threat.

Emergency interest rate cuts are rare and typically follow a credit shock, geopolitical escalation, or a sudden breakdown in financial stability. The last such cut came in March 2020, when the Fed slashed rates by 100 basis points in reaction to the global spread of COVID-19. During the early panic, investor sentiment plummeted, and even gold dropped to a seven-month low. However, the long-term impact favored risk assets, with the S&P 500 recouping its losses by late May 2020, while Bitcoin reclaimed the $8,800 level by late April 2020.

Despite adoption by major corporations as a treasury reserve, Bitcoin remains strongly correlated to tech stocks. Between March and May 2025, its 30-day correlation with the Nasdaq 100 stayed above 70%. Investors continue to view Bitcoin as a high-beta play on future economic growth. Rising tensions in the Middle East have reemerged as a major macro risk. The Strait of Hormuz handles roughly 20% of the worldwide oil and gas supply. Any disruption there increases energy costs and uncertainty. As businesses reduce operations under such conditions, inflation expectations cool and hiring slows, creating room for monetary easing.

Trade remains another source of fragility. If the temporary tariff truce between the US and China collapses, or if key partners like Canada or the EU abandon negotiations, US exports could suffer. To counteract weakening demand and protect the domestic industry, the US Fed may resort to rate cuts that support credit expansion and investment.

Higher interest rates don’t increase the federal debt, but they complicate refinancing costs. The 20-year Treasury yield has climbed to 4.9% from 4.6% over the past three months, a sign that investors still doubt inflation is under control. The market is demanding a higher premium, signaling uncertainty about the Fed’s stance. Meanwhile, the US Dollar Index (DXY) has dropped to 99 from 104 in March, nearing its lowest level in three years. If markets read a surprise cut as a signal of recession risk, the US dollar could weaken further. In that scenario, demand for inflation-resistant assets like Bitcoin may rise sharply, making a breakout above $120,000 not just possible, but increasingly logical.