US Inflation Rises Again, Could Hawkish Fed Pivot Slow Crypto Bull Market?

Economic data released in the US on Wednesday raised red flags as Core PCE inflation rose to 2.8% for October.

The Personal Consumption Expenditure Report reflects the average amount of money consumers spend each month and is used by central bank policymakers as a leading indicator of inflation.

“The Fed’s worst nightmare is officially here,” exclaimed Kobeissi’s Letter, adding that this week’s data confirmed that all three inflation metrics have risen again.

Compound inflation

These reports indicate an increase in the cost of living in the US since July, and now all three inflation indicators are also rising, it revealed.

“For the first time since February 2022, core CPI, PCE and PPI inflation are rising at the SAME time.”

He added that the clear “elephant in the room” is that inflation has stabilized above the Fed’s 2% target.

The Fed’s worst nightmare is officially here:

Today’s data confirms that ALL 3 inflation metrics are back up.

For the first time since February 2022, Core CPI, PCE and PPI inflation are rising at the SAME time.

Did the Fed spark another wave of inflation?

(a thread)

— Kobeissi Letter (@KobeissiLetter) November 27, 2024

Kobeissi added that core CPI has been above 3% for 42 consecutive months, the longest streak since the early 1990s, “which effectively means we have compound inflation.”

President-elect Donald Trump’s proposed tariffs on China, Canada and Mexico could also raise consumer prices and boost inflation.

This week, economists at Goldman Sachs predicted that the tariffs would directly affect personal consumption expenditures.

“Using our rule of thumb that each 1% increase in the effective tariff rate would increase core PCE by 0.1%, we estimate that the proposed tariff increases would increase core PCE prices by 0.9% if would apply,” they wrote.

Impact on Crypto

Rising inflation means the Federal Reserve could again take a brutal stance to halt interest rate cuts or even raise rates again.

After first starting rate cuts with a 50 basis point cut in 2008, the Fed is now worried about Chairman Jerome Powell, who recently said central banks were “in no rush” to cut rates.

High interest rates are usually bad news for risky assets like crypto, as low-risk cash-related investments are more attractive. Also, higher rates mean lower liquidity and excess money to invest since there are fewer loans.

However, crypto markets continued to rise this week, with total market capitalization reaching $3.5 trillion again, driven mainly by Ethereum and altcoins.

The bullish momentum of a new pro-crypto administration and strong institutional acceptance and investment could be enough to overcome a hawkish turn by the US central bank.

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