Bitcoin Drops Below $77,000 After Fed’s Waller Hints at Hikes

Bitcoin fell below $77,000 on Friday after Federal Reserve Governor Christopher Waller signaled openness to future rate increases. The cryptocurrency has fallen about 4.5% over the past week.

Waller delivered a speech in Frankfurt titled “Policy Risks Have Changed,” where he backed holding rates steady in the near term but warned that persistent inflation could require additional hikes.

Trader reaction was rapid. Futures markets show roughly a 40% chance of a 25-basis-point increase at the Fed’s Oct. 28 meeting, while a near-term hold still carries the largest single probability at about 49%.

Macro data has put pressure on risk assets. Headline consumer prices rose 0.6% in April, and the Federal Reserve’s preferred inflation gauge, core PCE, is running near 3.3% year-over-year. Real yields have risen and the dollar has strengthened, reducing demand for assets that do not pay interest.

Consumer sentiment weakened: the University of Michigan’s May index fell to 44.2, the lowest reading in the series, and one-year inflation expectations climbed to 4.8%.

Market participants are monitoring energy prices and the conflict in Iran for their potential impact on inflation. If oil prices stay high, policymakers may face continued pressure to tighten policy; if energy prices retreat, the hawkish market pricing could ease.

Waller said in Frankfurt, “I can no longer rule out rate hikes further down the road if inflation does not abate soon, and that is especially true if measures of inflation expectations, some of which have risen lately, show signs of becoming unanchored.”

The combination of higher real yields, a stronger dollar and sticky inflation readings has coincided with the recent drop in Bitcoin as traders adjust expectations for U.S. interest rates.