Market expectations regarding the rollout of Fed rate cuts this year have diminished following the release of today’s CPI data. Higher-than-anticipated inflation figures have exerted pressure on market sentiments, fueling concerns about the possibility of interest rates remaining elevated for an extended period.
US CPI Exceeds Expectations As previously noted by CoinGape, the US Bureau of Labor Statistics has unveiled February’s Consumer Price Index (CPI) data, revealing a higher-than-expected inflation rate of 3.2%. Conversely, annual core CPI inflation has dipped further to 3.8% from last month’s 3.9%, surpassing market forecasts of 3.7%. The monthly inflation rate of 0.4% aligns with January’s figure, exceeding market projections. Despite the high inflation rate, the US is still experiencing a gradual deflationary process, according to February’s data.
Potential Delay in Fed Rate Cuts Market expectations for around three rate cuts in 2024 had been priced in since December 2023, with the first expected in the March meeting. However, due to consistent signals from economic indicators and Fed officials, these expectations have significantly waned. According to the CME FedWatch Tool, investors now see a 99% chance of no rate cuts in the upcoming March meeting. Moreover, the anticipated timing for the first rate cut has shifted from June to September or later.
Federal Reserve Chair Jerome Powell has indicated that while the US economy doesn’t appear to be on the brink of recession, uncertainties remain regarding further progress on inflation. Consequently, the timing of interest rate adjustments to support ongoing economic growth remains uncertain.
Observations from State Street Global Advisors strategist George Milling-Stanley, as shared with Yahoo Finance, highlight the changing expectations regarding Fed rate cuts. Initially anticipating six rate reductions beginning this month, the outlook has now shifted to potentially four.
Potential Impact on Crypto Markets Traditionally, investors closely monitor Fed rate decisions when assessing asset allocations. Lower interest rates typically depreciate government securities, making cryptocurrencies like bitcoin more attractive. With the delay in rate cuts by the Fed, investors may temporarily favor traditional assets, potentially leading to volatility in crypto markets. However, a robust economy typically sustains high investor demand, maintaining purchasing power stability and favoring riskier investments. Hence, the Fed’s decision may not hinder the current upward trajectory of cryptocurrency markets.