US Inflation Slowdown Won’t Alter Fed Policy—Bitcoin Unfazed By CPI Numbers
US consumer price inflation cools further in July, boosting hopes for interest rate cuts. Bitcoin price remains stable. l Credit: Joe Raedle/Getty Images
Key Takeaways
- US inflation continues to decelerate, with July’s figures below expectations.
- The Federal Reserve expected to cut interest rates in September, with a strong possibility of a more significant 50 basis point reduction.
- Bitcoin and the broader crypto market showed little reaction to the inflation data.
In a much-needed break for consumers and policymakers, US consumer prices cooled off in July, continuing the downward trend that’s been a bright spot in an otherwise uncertain economic landscape.
However, challenges remain beneath the surface, keeping everyone on high alert as they wait to see how the Federal Reserve will respond.
Against this backdrop, Bitcoin’s reaction to the latest US CPI figures was decidedly muted – a non-event that spoke volumes about the market’s expectations.
It seems investors had already baked in the inflation data, leaving little room for surprise or excitement. As the dust settles, all eyes are now on the Fed’s next move and what it might mean for the economy and, by extension, the crypto market.
US Inflation Picks Up In July
Consumer prices in the United States increased at a slower pace in July compared to the previous year, according to official data released on Wednesday, Aug. 14, 2024. The Bureau of Labor Statistics reported an annual inflation rate of 2.9%, marking the lowest since March 2021. This figure was below market expectations and represented a decline from June’s 3.0% rate.
On a month-to-month basis, prices rose by a modest 0.2% in July, aligning with analysts’ forecasts.
Core inflation, which excludes volatile food and energy prices, also moderated, decreasing to 3.2% year-over-year from 3.3% in June. This metric remained in line with market predictions.
With the economy at a precipice, consumer confidence showing signs of weakness, spending slowing, and concerns over corporate earnings growing, many experts argue that a cautious approach will not suffice.
Impact On Interest Rates
DeVere Group CEO Nigel Green thinks the Fed was behind the curve when this cycle began. “And it cannot afford to make the same mistake twice. With rates currently sitting at a more than two-decade high, there’s no room for hesitation. A 25 basis point cut might signal a shift, but it’s not the aggressive action needed to stave off a potentially devastating hard landing,” he said.
“The case for a bold 50 basis point cut in September is clear. This move would send a powerful signal that the Fed is serious about steering the US economy away from the brink of a recession.”
Michael Brown, Senior Research Strategist at Pepperstone, told CCN: “It seems rather unlikely that the inflation figures will materially alter the policy outlook, though the data does likely help to provide officials with further confidence in the disinflationary process, as price pressures continue to recede back towards the 2% target. Though the market continues to engage in a tug-of-war over whether the said cut will be 25bp or 50bp, a more modest 25bp move seems a reasonable first step on the road to normalizing policy, with a larger cut likely to smack of panic at this juncture.
That said, with inflation, particularly per the preferred core PCE metric, now within touching distance of the target, the speed and degree of further cuts look set to hinge on developments in the labor market. Barring significant, unexpected, further labor market weakness, a total of 50bp of cuts this year – in September and December – seems the most likely outcome. However, an additional 25bp cut in November could well be on the cards if unemployment were to rise further.”
Crypto Market Reaction
Bitcoin experienced a brief surge towards $61,800 following the release of US inflation data, but the cryptocurrency quickly retraced to around $61,000. This muted reaction suggests that markets had largely anticipated the figures.
Investors appear to have already priced in the inflationary environment, resulting in a relatively calm Bitcoin market despite the economic news.
The overall cryptocurrency market capitalization rose by 2.4% to $2.14 trillion, while trading volume dipped by 11% to $67.47 billion in the past 24 hours. Stablecoins continue to dominate the market, accounting for 93% of the total trading volume at $62.95 billion.
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