Bitcoin and Ethereum Response to Inflation Data
Inflation in the U.S. has cooled more than expected, dropping to 2.9% in the 12 months through July. This slowdown is significant as it marks the lowest inflation rate since March 2021. However, this doesn't mean the Federal Reserve will immediately slash interest rates. One of the main reasons is persistent shelter cost inflation, which remains high.
Bitcoin experienced a slight decline following the report. Traders are betting on a 0.25% rate cut by the Fed. The decrease in inflation is a positive indicator, yet, Bitcoin's price still saw limited movement, hovering around $61,200, which is a 3.9% increase from the previous day. Similarly, Ethereum and Solana also saw increases, with Ethereum reaching $2,740 and Solana $151.
Experts Weigh In
Dessislava Aubert, a senior research analyst at Kaiko, commented on the situation, “It’s slightly disappointing, but not a bad print because it still clears the way for a Fed rate cut in September.” She noted that the subdued response from Bitcoin might be linked to the Producer Price Index (PPI) data, which showed less-than-expected price rises.
Xu Han from HashKey Capital highlighted that upcoming data on jobless claims and retail sales could significantly influence market dynamics. "The market is more concerned about short-term growth data," he stated.
Inflation Trends and Fed Expectations
Inflation has seen a significant drop since it peaked at 9.1% in June 2022. Core inflation, which excludes volatile items like food and energy, remains at 3.2%. This figure is crucial as it influences the Fed’s decisions on interest rates. Shelter costs, contributing to the bulk of inflation, are a major concern for economists.
Traders are hopeful for interest rate cuts. Initially, there was a 50% chance of a 50 basis points cut, but this probability increased to 60% after the latest figures. Juan Leon, a senior strategist at Bitwise, pointed out that while the market is optimistic about a larger rate cut, the Fed is cautious. "With core inflation still above 3%, the Fed isn't ready to cut rates," he explained.
Broader Market Implications
Weaker job growth in July had briefly pushed Bitcoin below $50,000. However, positive data from the U.S. services sector alleviated fears. Wintermute analysts noted that recent PMI data suggests the U.S. economy is more robust than anticipated.
As the Fed considers a rate cut, they need to balance stable prices and maximum employment. Cutting rates prematurely might lead to a resurgence in inflation, while maintaining high rates could risk a recession.
The Fed awaits more data before its September decision, including Personal Consumption Expenditures and the upcoming August jobs report. Leon commented, "Labor market data will be crucial for Bitcoin's future movements. Weakness there could prompt the Fed to cut rates in September."
