The latest Consumer Price Index (CPI) figures released by the United States have exceeded expectations, indicating a strong inflationary trend that could significantly influence the Federal Reserve's upcoming monetary policy decisions. The bitcoin and cryptocurrency markets reacted with a rapid downward trend. btc price initially fell by 2.7%, falling below $67,200. Altcoins have reacted even more strongly to the data.
The non-seasonally adjusted CPI for March 2024 soared to an annual rate of 3.5%, surpassing both the anticipated figure of 3.4% and the February rate of 3.2%, marking the highest inflation rate since September 2023. This rebound reflects not only a temporary economic fluctuation, but deeper and more sustained inflationary pressure within the economy.
Details of the CPI report reveal that both headline and core inflation rates, which exclude volatile food and energy prices, rose 0.4% month over month. This consistent increase highlights widespread inflationary pressure across multiple sectors, not limited to volatile categories. The year-over-year core CPI maintained its pace at 3.8%, slightly above market forecasts and unchanged from February, indicating that underlying inflation pressures remain persistent.
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❖ US CPI (MOM) (MAR) REAL: 0.4% VS 0.4% PREVIOUS; EST 0.3%
❖ US CPI (yoy) (MAR) REAL: 3.5% VS 3.2% PREVIOUS; EST 3.4%
❖ US CORE CPI (MOM) (MAR) REAL: 0.4% VS 0.4% PREVIOUS; EST 0.3%
❖ US CORE CPI (YOY) (MAR) REAL: 3.8% VS 3.8% PREVIOUS; EST 3.7%
— *Walter Bloomberg (@DeItaone) twitter.com/DeItaone/status/1778037904264004027?ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank”>April 10, 2024
Market Reactions and the Federal Reserve's Dilemma
The market response to these figures was swift, with immediate implications for interest rate expectations. The swaps market, a reliable indicator of monetary policy expectations, showed a lower probability that the Federal Reserve will reduce interest rates in the near future. According to CME Group's FedWatch tool, the probability that rates will remain unchanged at the Federal Reserve's May meeting is now 94.1%, with an 81.3% probability of remaining stable through June.
Mohamed A. El-Erian, offering his perspective, twitter.com/elerianm/status/1778048231097704793″ target=”_blank” rel=”noopener nofollow”>fixed, “The market is now pricing in less than two Fed cuts this year, as it takes another step in the direction of “later and less” for the overly dependent Fed. Major stock futures indices are down more than 1% and the dollar is stronger. All of this puts the Federal Reserve in a rather complicated position, where it must take a holistic view of what lies ahead for the economy as a whole. But will it be?
Christopher Inks attempted to temper reactions by reminding the public of the Federal Reserve's preference for the personal consumption expenditures (PCE) price index as its primary measure of inflation.
“Since we are seeing people responding about what the Fed is going to do regarding rate cuts as a result of the CPI release this morning, I will remind you once again that the Fed stopped focusing on the CPI about one of each. “Its preferred inflation indicator is the PCE, which is published at the end of the month,” Inks twitter.com/TXWestCapital/status/1778045618235040104″ target=”_blank” rel=”noopener nofollow”>explained.
Implications for bitcoin and the crypto market
The cryptocurrency market has been closely following the data. Charles Edwards pointed out the adverse effects of rising inflation and decreasing liquidity on cryptocurrencies. twitter.com/caprioleio/status/1778046513257808347″ target=”_blank” rel=”noopener nofollow”>indicating
Matt Hougan (CIO of Bitwise) and Dave Weisberger (President of CoinRoutes) offered the opposite. twitter.com/Matt_Hougan/status/1778048008384295139″ target=”_blank” rel=”noopener nofollow”>view, suggesting that current market conditions may favor cryptocurrencies in the long term. Hougan noted: “Whether or not the Federal Reserve cut rates by 25 basis points in June is not the long-term factor driving bitcoin prices right now. It is a marginal factor. “ETF flows + rising deficits are more important and aligning very well with bitcoin.”
Weisberger, sharing Hougan’s optimism, added: “Okay. My contrarian view is that this is a buying opportunity, as these numbers show the strongest cracks in the dollar's hegemonic FIAT experiment yet… Gold, for the moment, is doing things right and bitcoin will inevitably react . (Meanwhile, the whales' playbook of pushing the market down to buy cheaper is still alive…).”
At the time of publication, btc was trading at $68,277.
Featured image from Shutterstock, chart from TradingView.com
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