The U.S. Federal Reserve mandates to bring inflation under the 2% target and the FOMC looks at key economic data such as PCE, CPI, and jobs for monetary policy decisions. Fed officials, economists, and analysts now look at personal consumption expenditures (PCE) as CPI and core CPI came in hotter. While investors reassess monetary policy prospects, crypto and stock markets still expect the Fed to cut rates in May.
US Fed Looks to PCE for Final Confirmation on Rate Cuts
The annual CPI inflation rate in January declined to 3.1% from 3.4% in December, but remained slightly above market expectations of 2.9%. Moreover, annual core inflation held steady at 3.9%, also above forecasts of 3.7%. Month-over-month, consumer prices rose by 0.3%, and the core monthly rate picked up to 0.4%.
Jeffrey Gundlach of DoubleLine Capital asserts PCE data that comes on February 29 are much more important than the CPI inflation data at this time. He said, PCE “cannot go up and have the Fed talking about cutting interest rates.” He added that the 3-month annualized core CPI is coming up now and the 2-year Treasury yield signals about 100 bps rate cuts this year, so the market can calm. However, he expects the Fed can start rate cuts in June, not May.
Morgan Stanley has a similar outlook, saying PCE running much closer to target than CPI. “The fact that these measures are sending notably divergent signals will be concerning for Fed officials.” The bank expects the Fed to begin easing rates at the June meeting.
After the hot CPI data, economist Peter Schiff warns that the Fed has already lost to fight against inflation. The delay will not help the market or economy, rising inflation means interest rates will come anyway.
“This is actually very bearish for the U.S. economy, the stock and bond markets, and the dollar, but very bullish for gold. Investors just don’t understand this yet.”
PCE missing market estimates will be brutal for global stock markets, but less for the crypto market this time. The likely bank failures and Bitcoin halving will bring more money into the crypto market, especially Bitcoin.
Bitcoin Bulls Remain Strong For Upcoming Rally
The crypto market fell and BTC price broke below $50,000 after the CPI release, but the global crypto market cap remained resilient at $1.87 trillion. Bitcoin rival gold is down and investors will likely bet on Bitcoin and Ethereum in light of current sentiments.
The CME FedWatch Tool shows an almost 52% probability of 25 bps rate cuts in June after the CPI release, with no probability of rate cuts in March and May.
The crypto derivatives traders are still bullish despite a selloff in spot market. Crypto futures open interest dropped slightly from $47.32 billion to $46.94 billion.
Total BTC and ETH options open interest jumped 2% to $24.29 billion, with a rise in CME BTC Futures open interest to $6.28 billion.
BTC price rises to $49,894 after dropping to $48,472. However, trading volume dropped by over 10% in the last 24 hours, indicating a decline in interest among traders.
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The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
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