- Currently, Federal Reserve officials, economists, and analysts are focusing on Personal Consumption Expenditures (PCE) due to the unexpectedly high Consumer Price Index (CPI) and Core CPI.
- While investors reassess their monetary policy expectations, the crypto and stock markets still anticipate a Federal Reserve interest rate cut in May.
- The annual CPI inflation rate for January decreased from 3.4% in December to 3.1%, but it still slightly exceeded market expectations.
Following the release of inflation data in the U.S., attention is now turning to PCE reports: How will Bitcoin price move ahead of the data?
PCE Data in the U.S. is Closely Monitored by the Market
The Federal Reserve in the United States, while mandating to keep inflation below 2%, looks at crucial economic data such as Personal Consumption Expenditures (PCE), Consumer Price Index (CPI), and unemployment for monetary policy decisions through the Federal Open Market Committee (FOMC). Currently, due to higher-than-expected CPI and Core CPI data, Federal Reserve officials, economists, and analysts are focusing on Personal Consumption Expenditures (PCE).
While investors reassess their monetary policy expectations, the crypto and stock markets still anticipate a Federal Reserve interest rate cut in May. Despite higher-than-expected CPI data, COINOTAG previously reported a potential surge to $55,000. Increasing entries in the spot Bitcoin ETF highlight a significant surge in the bull market.
The annual CPI inflation rate for January decreased from 3.4% in December to 3.1%, but it still slightly exceeded market expectations. Additionally, the annual core inflation remained steady at 3.9%, surpassing estimates of 3.7%. Monthly, consumer prices increased by 0.3%, and the core monthly rate rose to 0.4%.
Jeffrey Gundlach from DoubleLine Capital claims that PCE data, to be released on February 29, is currently more critical than CPI inflation data. He noted that a rise in PCE and discussions of a Fed interest rate cut would be inappropriate. He also mentioned that the 3-month annual core CPI is currently rising, signaling an approximately 100 basis point interest rate cut in 2-year Treasury yields this year. However, he expects the interest rate cuts to begin in June, not May.
Morgan Stanley holds a similar view, stating that PCE is much closer to the target compared to CPI. The bank anticipates that the notable differences in these measures will be concerning for Federal Reserve officials. They predict that the Fed will go ahead with an interest rate cut at the June meeting.
Following the CPI data, economist Peter Schiff warns that the Fed has already lost the battle against inflation. The delay will not help the market or the economy; increasing inflation implies that interest rates will rise in the future.
“This is actually very negative for the U.S. economy, stocks and bond markets, and the dollar, but very positive for gold. Investors haven’t realized this yet.”
If PCE fails to meet market expectations, it could be harsh for global stock markets, but it may have a less pronounced impact on the crypto market this time. Possible bank failures and the Bitcoin halving, especially, could bring more money to Bitcoin.
Bitcoin Bulls Remain Strong for the Upcoming Rise
After the CPI announcement, the crypto market dipped, and BTC price fell below $50,000, but the global crypto market cap showed resilience at $1.87 trillion. While Bitcoin’s competitor gold declined, investors will likely favor Bitcoin and Ethereum amid current sentiments. The CME FedWatch Tool indicates a nearly 52% probability of a 25% interest rate cut in June after the CPI announcement, with no likelihood of a rate cut in March and May.
Cryptocurrency derivatives traders remain bullish despite selling in the spot market. Open interest in crypto futures slightly dropped from $47.32 billion to $46.94 billion. The total open interest for BTC and ETH options increased by 2% to $24.29 billion, and CME BTC Futures open interest rose to $6.28 billion.
BTC price, after dropping to $48,472 following the CPI, rose to $51,667. Additionally, trading volume increased in the last 24 hours, indicating growing interest among traders.
