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Will US Inflation Thwart Bitcoin Today?

It’s time for another US Consumer Price Index (CPI) update and that could be important for the Bitcoin price today and for the rest of 2023. The narrative is beginning to form in macro circles that inflation could pick up in the final months of the year. Today, the CPI is expected to rise from 3.0 percent (June) to 3.3 percent in July.

In this macro update, we take a closer look at US inflation and discuss its potential impact on Bitcoin price.

Return of inflation in America

There is a feeling that inflation may have hit a local bottom. The market has been euphoric over the past few months on the observed disinflation. The consumer price index came in at 3.0 percent last month, close to the Federal Reserve’s target of 2.0 percent, and core inflation (CPI minus food and energy prices) came in at 4.8 percent last month.

The return of inflation to 2.0 percent is important for the financial market because it means that the US Federal Reserve can stop raising interest rates. In 2022, it was mainly the aggressive interest rate hikes that pushed prices down in the market and raised concerns about a possible recession.

This recession hasn’t happened yet, but despite the euphoria, it’s still lurking. As a result, today’s CPI is expected to rise to 3.3 percent. However, the focus is on core inflation. It is expected to remain stable at 4.8 percent, which is still far too high.

An increase of 0.2 percent is expected from June to July, which would not be a bad value. The Cleveland Fed’s Nowcast model forecasts a monthly rise in core inflation of 0.4 percent; which will increase the likelihood of further rate hikes by the US Federal Reserve.

Source: Cleveland Federal Reserve

For this reason, it is important for the Bitcoin price that the monthly increase in core inflation (Core CPI) is actually 0.2 percent.

What does this mean for the Bitcoin price?

It would be good for the bitcoin price if the fall in inflation continues. So today is an exciting day. Should inflation return, the Federal Reserve will be in an extremely difficult position. Should they hike rates again in September?

The effects of previous rate hikes are already being felt in various parts of the economy and a recession is still lurking. If inflation returns, the Federal Reserve will have to make a final choice between economics and inflation.

If they decide to push inflation to 2.0 percent at all costs, recession seems a certainty. That won’t be the best outcome for bitcoin price, as people in a recession need to sell their investments to stay afloat (financially).

Source: CME Group

The market is currently estimating the probability of another rate hike in September at 13.5 percent. Personally, I would also find it strange if the US Federal Reserve decided to raise interest rates again. That would put even more pressure on the economy, with all sorts of consequences.

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