A decline in consumer inflation sparks optimism, yet the crypto market remains largely unaffected by the development.
The U.S. Consumer Price Index (CPI) has reached its two-year low following the latest release on July 12. According to the U.S. Bureau of Labor Statistics, the CPI in June experienced a mere 3% increase compared to the previous year.
This drop can be attributed to subdued consumer costs and the high base effect from the corresponding period last year.
However, 3% inflation is not low, and does not mean that global central banks are done with higher rates. In fact, 3% inflation is above the Fed’s mandated range, which could mean more rate hikes.
CPI Hit Two-Year Low
The latest figures have exceeded expectations, with both year-on-year and month-over-month changes falling below the projected estimates by Dow Jones. The year-on-year change was expected to be 3.1%, but it has impressively remained at 3%.
Similarly, the month-over-month change was projected to be 0.3%, but it has only inched up by 0.2%. These results highlight that the Fed’s efforts to combat inflation are starting to take effect. However, it is essential to note that inflation is still high, and it is possible that it could rise again in the future.
The core CPI, which excludes volatile food and energy prices, rose by 4.8% year-on-year and a marginal 0.2% month-over-month.
These figures, although still above the desired 2% target set by the Federal Reserve, are lower than the forecasts previously predicted by Dow Jones. This indicates some progress in managing underlying inflationary pressures.
The latest development comes as a sigh of relief for the US Federal Reserve, as it indicates that their efforts to tighten policies and curb inflation may be yielding positive results. The core CPI was reported at 4.8%, a lower rate than previous anticipations.
Last year, the US experienced soaring consumer price inflation, reaching a peak of 9.1% in June, the highest level witnessed since November 1981. The current data reflects a significant turnaround in this trend, potentially offering a positive outlook for the country’s economic stability.
Despite the good news, Fed official Barkin warned that “inflation is still very high.” This continues to pose a significant challenge. The executive noted that the decline in inflation has been slower than initially expected, despite the FED’s aggressive efforts to combat it.
Adding to the uncertainty, Barkin highlighted the unknown effects of declining demand on inflation, casting doubts on the future trajectory of prices. While the employment market remains robust, Barkin emphasized that the resolution of the inflation dilemma remains uncertain.
Furthermore, Barkin stressed the FED’s determination to take further action if the desired 2% inflation target is not promptly achieved. These comments have sparked concerns among investors, fueling speculation that Fed will likely lift the interest rate later this year.
The crypto market is likely to be affected by the Fed’s comments in several ways. The likelihood of increased interest rates, increased volatility, and loss of confidence are all factors that could explain why the prices of Bitcoin and altcoins are stuck.
The crypto market has shown a relatively limited reaction to the news by far. However, with the cooling off of inflation, market observers anticipate a potential bounce in the market in the near future. On-chain data shows that Bitcoin surged to $30,900 following the CPI news. Bitcoin is hovering at $30,700, while Ethereum is trading around $1,890.
The upcoming Federal Open Market Committee (FOMC) meeting is undoubtedly an event with implications for both traditional and digital markets.
However, there is a growing concern about whether the Fed’s decisions could still contribute to the crypto market sentiment is things go according to expectations, which are mixed, and may be overly optimistic.