The Federal Reserve’s most popular inflation indicator, the Core Personal Consumption Expenditures Price Index (Core PCE), has fallen below the 2.0% target over the past 6 months. The Federal Reserve’s goal is to reduce inflation to 2.0%, and if we extend the last 6 months to a 12-month period, the Fed has succeeded.
What does this inflation data mean for Bitcoin price? Can interest rates be cut now and the bull market begin?
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Can someone finally lower interest rates?
Starting in March 2022, we faced the Federal Reserve’s most aggressive interest rate campaign ever. But now it finally seems to be time to talk about cutting interest rates.
If this chart is a good indicator of the future, the Federal Reserve cannot start cutting interest rates soon enough. Based on this diagram, it needs to hit the brakes very quickly to prevent air loss.
Why is deflation so bad?
Basically, you might think that falling prices would be good for your wallet. This is good in theory, but unfortunately in practice it works differently. In practice, we work with a financial system based on debt, and we pay interest on that debt.
As the value of money increases, the value of that debt also increases and it becomes even more difficult to pay it off. For example, the American government benefits enormously from inflation.
What does this mean for the Bitcoin price?
The current expectation is that we will get about 1.5% interest rate cuts from the Federal Reserve in 2024.
That means they’re tapping the brakes quite aggressively, perhaps to prevent deflation, but also because the economy is starting to slow down. It is now up to the Federal Reserve to ensure that we have a soft landing and do not fall into a recession.
Are they keeping interest rates at this high level for too long? Then deflation and recession scenarios are not unthinkable…
For the Bitcoin price, this means above all that we have to hope for interest rate cuts and the success of the US Federal Reserve’s soft landing. If this works, combined with the spot Bitcoin ETFs and the April 2024 halving, Bitcoin could be in for a very good year.
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