- While inflation levels in August have decreased somewhat after the striking 9% increase seen in June, they are still above the Fed’s target of 2%.
- Market volatility doesn’t appear to have affected the high peak-low dip trend established towards the end of last year, indicating that the trend remains stable.
- The Fed will evaluate Wednesday’s report as one of the factors, including the strength of the labor market, before announcing interest rates later this month.
The inflation rate in the United States saw a year-on-year increase in August; how will the US Federal Reserve’s next move shape up?
Bitcoin Investors Are Watching the Next Move by the Fed
August was a negative month in the United States as inflation rapidly increased. However, cryptocurrency prices remained stagnant without forming a clear trend. While Ethereum showed an upward trend, Bitcoin continued to flirt with the $30,000 level. Despite a slight decrease in inflation levels in August after the striking 9% increase in June, they are still above the Fed’s target of 2%.
The Consumer Price Index (CPI) increased by about 4% up until August of last year. The Bureau of Labor Statistics (BLS) noted that this was slightly above the 3.6% expectation. An increase in gasoline prices led to a 0.6% index increase in August, following a 0.2% increase in the previous two months. According to the BLS, the increase in gasoline prices was responsible for half of the index increase.
As of today, Bitcoin is trading at $26,280 according to the data, while ETH has experienced a 1.40% increase. Market volatility doesn’t appear to have affected the high peak-low dip trend established towards the end of last year, indicating that the trend remains stable. A crash similar to what happened in June could trigger bullish expectations overall.
Ethereum experienced a sharp increase in the ETH/USD trading pair in June. However, this trend seems to have paused last month. Altcoins like Polkadot also saw minor losses.
Fed’s Actions After the CPI Report
Before announcing the interest rate, the Fed will evaluate Wednesday’s report as one of the factors, including the strength of the labor market, which will be announced later this month. In response to the 9.1% inflation rate in June, the Federal Reserve System tightened its monetary policy by raising interest rates; this inflation level was the highest seen since the recession.
High-interest rate policies cool down an economy in which investors, consumers, and entrepreneurs find it difficult to borrow and less money circulates. This balances demand and supply, reducing inflation.
High-interest rates have also affected other assets such as cryptocurrencies and bonds, as investors shifted their focus to safe-haven assets. Although inflation has significantly decreased from the high levels seen in June, the trend still suggests a potential interest rate hike because it remains close to the Fed’s 2% target.
After raising the interest rate in June, the Fed increased it to 5.25% and 5.5% in July. Wednesday’s CPI report indicates that core inflation decreased by 0.2% year-on-year in August.
According to Butterfill, there is no reason for concern regarding August’s inflation; he also added that cryptocurrency prices showed a slight change in response to central bank news.
According to CME Fedwatch Tool, investors have signaled a likelihood of keeping interest rates stable after the report, with a possibility of a 0.5% cut in January 2024.
The Impact of Fed Policy on Digital Assets
Cryptocurrency prices fell in August after the Federal Reserve approved an interest rate increase. Bitcoin fell by 2%, pulling the crypto market down, total market capitalization decreased by 1.7%, and Ethereum fell by 1.5%, while the dollar index reached its highest level of the month.
Traders were expecting the rate hike in July to be the last one. However, the Fed says that the battle against inflation is not over yet, so this is the second rate hike of the year. The increase in reserves has largely limited the rise of assets because investors are turning to safer bets like bonds.
