America’s inflation has finally dipped to 2.9% in July, the first time it’s been under 3% since March 2021. This decline in the inflation rate is a big deal, considering the wild ride the U.S. economy has been on lately.
But don’t get too excited yet—this doesn’t mean we’re out of the woods. The Federal Reserve hasn’t said anything yet.
What’s the Fed to do now?
The core consumer price index (CPI), which cuts out the unpredictable food and energy prices, increased by 3.2% over the past year. Sure, it’s the slowest rise we’ve seen since early 2021, but let’s not forget: inflation is still very much here.
The monthly increase in July was 0.2%, just a hair above June’s numbers, according to the Bureau of Labor Statistics (BLS). Almost 90% of this increase was due to higher shelter costs, which saw a noticeable jump from the previous month.
America’s economy is slowing down, and the job market is starting to lose steam. With these trends in mind, it looks like the Federal Reserve is preparing to cut interest rates next month.
Before the Fed’s September meeting, they’ll be getting more data on inflation and another jobs report. July’s job numbers were a letdown, triggering a global market selloff and fears of a possible recession.
Jerome Powell, the Fed Chair, and his team have made it clear that they’re focusing more on employment right now.
The summer has seen a gentle decline in inflation, though there was a brief spike in spring that had everyone holding their breath.
Bitcoin and the Fed’s rate cuts: What to expect
Now, let’s talk about how all this Fed business might impact Bitcoin. If the Fed decides to cut interest rates next month, it could be a big win for Bitcoin and other cryptocurrencies.
Jay Powell, Chairman of the Federal Reserve of the United States
Lower interest rates typically push investors to take more risks, and that’s where Bitcoin comes in.
When traditional investments like bonds start yielding less, folks tend to look for higher returns elsewhere, and Bitcoin has often been the go-to for that.
Analysts have pointed out that previous rate cuts have often been followed by strong rallies in Bitcoin. For instance, during the rate cuts in 2020, Bitcoin’s performance went through the roof.
So, if the Fed cuts rates again, we could see a similar surge in Bitcoin’s price. Plus, with more liquidity in the market thanks to lower borrowing costs, it becomes easier for people to invest in cryptocurrencies.
BUT, there are some risks.
If rate cuts are seen as a sign that the economy is in trouble, it could create a lot of volatility in the market. Bitcoin’s price is notorious for being sensitive to market sentiment and speculation.
And if inflation doesn’t cool off as much as the Fed hopes, they might be hesitant to cut rates, which could affect Bitcoin. The correlation between Bitcoin and the stock market is another thing to watch.
As stocks tend to perform well during periods of low interest rates, Bitcoin might also benefit from a broader bullish sentiment in the market.
But if the Fed decides to hold off on rate cuts due to lingering inflation concerns, Bitcoin could face some headwinds.
