The most recent U.S. Consumer Price Index (CPI) numbers have surpassed predictions, pointing to a strong inflationary tendency that may greatly impact the next monetary policy choices made by the Federal Reserve. Crypto markets, including Bitcoin, responded with a precipitous decline. Initially, the price of Bitcoin fell below $67,200, a decline of 2.7%. The data has prompted an even stronger reaction from altcoins.
March 2024's non-seasonally adjusted CPI jumped to 3.5% yearly, the highest inflation rate since September 2023, above both the expected 3.4% and February's 3.2% rates. This increase reveals a more systemic and long-lasting inflationary strain inside the economy, rather than just a passing economic trend.
According to the specifics of the CPI data, there was a 0.4% month-over-month rise in both the headline and core inflation rates, which do not include the highly volatile food and energy costs. This consistent increase highlights the widespread demand for inflation across many industries, not only those with a high degree of volatility. At 3.8% year-over-year, the core consumer price index remained constant from February and somewhat outpaced market expectations, suggesting that underlying inflation pressures are still strong.
Reactions in the Market and the Federal Reserve's Catch-22
Immediate repercussions for interest rate expectations were felt by the market in reaction to these statistics. There was less consensus on when the Federal Reserve would drop interest rates in the swaps market, which is a good indicator of monetary policy expectations. There is an 81.3% likelihood that rates will stay unchanged through June, and a 94.1% chance that they will stay unchanged during the Fed's May meeting, according to CME Group's FedWatch tool.
The market is currently pricing less than two Federal Reserve cuts this year as it takes another step in the "later and fewer" path for the unduly reliant Fed, according to Mohamed A. El-Erian, who offered insights into the matter. The dollar has strengthened as the main stock futures indexes have fallen more than 1%. This puts the Federal Reserve in a difficult situation, and it is imperative that it considers the economy in its whole when making decisions. Will it, though?
To calm people down, Christopher Inks brought out the fact that the Federal Reserve uses the Personal Consumption Expenditures (PCE) Price Index to gauge inflation.
In light of the fact that many are wondering if the Federal Reserve would announce any interest rate decreases in response to today's CPI data, I'll remind you that the central bank ceased paying attention to the CPI about ten years ago. According to Inks, the PCE, which is released at the end of each month, is the favored inflation indicator.
Crypto investors have been keeping a careful eye on the numbers. "Inflation rising again and more than expected," Charles Edwards said, highlighting the negative consequences of increasing inflation and reducing liquidity for cryptocurrency. Perhaps connected to the reasons we saw a decline in liquidity in the last few weeks as well. Crypto will suffer if these two tendencies persist.$BTC
The other viewpoint was put up by Bitwise's CIO, Matt Hougan, and CoinRoutes' chairman, Dave Weisberger, who both believe that the present market circumstances may ultimately work in the advantage of cryptocurrencies. According to Hougan, the current long-term factor influencing Bitcoin pricing isn't whether the Fed cuts rates 25 basis points in June or not. It's not a major consideration. More important are ETF flows and growing deficits, and these factors are converging favorably on Bitcoin.
"Agreed," Weisberger said, echoing Hougan's hopeful outlook. In my opinion, the dollar's hegemonic FIAT experiment is starting to show its first signs of weakness, which means now is a good time to invest. (Meanwhile, the strategy of whales to drive prices down in order to purchase cheaper is still in action...) Gold is now on the money, and Bitcoin will respond in due course.
