The US consumer price index (CPI) came in today at 4.9 percent for April, while a score of 5.0 was expected. This means that this indicator has fallen by 0.1 percent compared to March, meaning that inflation has fallen more than originally expected.
The Bitcoin price rose by several percent almost immediately after this news, as this means that the Federal Reserve will probably take a break in June.
What does that mean?
By pausing the Federal Reserve, we mean that the US central bank stops raising interest rates. They initially did so to deal with the inflation problem and today’s numbers indicate that they are slowly winning that war.
Interest rate hikes are not good for financial markets because they make borrowing capital more expensive. Ultimately, this weighs on the economy and, by extension, on people’s ability to invest.
In addition, a higher interest rate means that you receive a higher return on things such as government bonds. US government bonds now yield – depending on the term – sometimes more than 5 percent per year.
Of course, that makes an investment in such products increasingly attractive compared to the uncertain returns of things like Bitcoin and stocks. In the meantime, inflation has begun to ease, reducing the likelihood of further interest rate hikes from the Federal Reserve, which is good news for Bitcoin.
High probability of break
The cool thing is that you’re on the futures markets you can see what the experts think is the chance of new interest rate hikes. At the time of writing, the probability of another rate hike at the next Federal Reserve interest rate meeting on June 14 has dropped from 25 to 14.2 percent due to positive inflation data.
Right now, the probability of a Federal Reserve interest rate pause is 85.8 percent. Usually the futures markets are not far off. Certainly not when it comes to such convincing percentages.
Only if next month’s inflation data is disappointing and slightly higher than hoped, is there a chance that the Federal Reserve might raise interest rates after all. At the moment, however, that chance seems small and we can probably prepare for a break, so that the Bitcoin price rebounds.