New Inflation Reading Signals Fed Rate Cuts Tailwind for Bitcoin Price

It could be a buy the rumor, sell news situation with the price of Bitcoin and the Labor Department CPI report on Wednesday morning.

Spot Bitcoin on crypto exchanges rose sharply on Tuesday and recovered on Wednesday morning, but the picture changed later in the day and BTC fell to $58,000.

Economists were expecting a lower inflation reading from the US Bureau of Labor Statistics this week. A survey of economic analysts conducted by Dow Jones ahead of the report’s release found that respondents expected an average increase of 0.2% in prices overall and in the core inflation metric.

The CPI inflation report comes in very well

“At this point, the inflationary pressure that we saw building up has dissipated significantly,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. According to Baird, inflation has now become “a problem that is not a problem (…) There is this broad expectation that the worst is easily behind us.”

Baird added:

“Given the focus on the relative weakening of the labor market, given that inflation is coming down fairly quickly, and I expect that to continue over the next few months, it would be a surprise if the Fed didn’t begin to move toward easing very quickly.” , presumably at the September meeting.”

The fall in the consumer inflation metric gives the US central bank plenty of room to cut rates later this year. I might even start cutting them as early as September.

Bitcoin Price Rises Before Inflation Prints

The Fed has been concerned about slowing labor markets and GDP. His dual mandate from Congress is to keep unemployment as low as possible while stabilizing prices.

When the Fed lowers rates or indicates that it will lower them again in the near future, the BTC price tends to rally. This is due to the economics of supply and demand, as well as the nature of Bitcoin.

The original and class-leading cryptocurrency has a fixed supply of 21 million bitcoins (BTC). The network will never issue more units of the cryptocurrency than this hard supply limit. It also issues new supply at a decreasing rate that is halved on a regular schedule every four years.

As a result, the economics of the bitcoin price is inversely correlated with US dollar interest rates. BTC rallied in the week and 24 hours before the US inflation report and fell 3% after the Labor Department released the report and confirmed economists’ expectations.

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