U.S. CPI reported at 2.5%, much lower than expected
Last night, the U.S. Bureau of Labor announced the latest Consumer Price Index (CPI) in August. The annual growth rate was only 2.5%, which was far lower than market expectations. Not only was it a new low since February 2021, but it was also the fifth consecutive CPI increase. The monthly cooling indicates that inflationary pressure has eased.
Although the annual core CPI growth rate was 3.2%, in line with market expectations, its monthly growth rate reached 0.3%, the largest increase in four months, which may affect the interest rate decision of the US Federal Reserve (FED) next week.
According to CME Group's observation indicators, the market currently expects that the probability that the Federal Reserve may cut interest rates by 1 yard has increased to 85%, while the probability of a 2-yard rate cut has dropped to 15%.
Image Source: CME CME Fedwatch Tool: Chances of a September Rate Cut
However, the CEO of Goldman Sachs believes that current economic data still shows that there is a risk of accelerating inflation. If the weak labor market trend continues, the US Federal Reserve may still cut interest rates by two points at the September meeting.
U.S. stocks and Bitcoin rise in response
After the news that CPI was lower than expected, the investment market reacted positively. In terms of U.S. stocks, the Dow Jones Industrial Average rose 124.75 points on Wednesday; Huida's stock price rose 8%. Other chip stocks also performed well, with the Philadelphia Semiconductor Index rising nearly 5%.
In the crypto market, Bitcoin ($BTC) once exceeded $58,000 this morning, rising nearly 2.3% in a single day, and was $57,947 at the time of writing; Ethereum ($ETH) once exceeded $2,380, rising by about 2% in a single day.
Image Source: CoinGecko Bitcoin Price
What is CPI? What impact will it have on Bitcoin?
According to data provided by Lookonchain, there is a strong correlation between the price of Bitcoin and CPI trends, with Bitcoin prices tending to rise when CPI shows reduced inflationary pressure.
This trend is closely related to the behavior of investors. In a high-inflation environment, the rise in CPI will weaken the purchasing power of consumers. Investors may avoid riskier assets and turn to traditional inflation hedges such as government bonds or gold. tools and have a negative impact on risky assets such as the stock market and Bitcoin.
However, when inflationary pressures ease, indicating increased economic stability, investors may move back into riskier assets like Bitcoin.
With the decline in U.S. CPI and expectations of interest rate cuts from the Federal Reserve, market stability is expected to further strengthen. Investors should pay close attention to the upcoming Federal Reserve meeting and future economic data.
Further reading
Market Intelligence｜Welcome the New Year Quotes! Watch the 2024 U.S. CPI and interest rate hike meeting times at once
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
