US CPI Unchanged
Consumer prices remained unchanged in October and saw a year-over-year increase of 3.2%, marking a deceleration from September’s pace. The peak inflation rate was 9.1% in June 2022. Core inflation, which excludes food and energy prices, also slowed down, indicating easing price pressures. The annual rate of core inflation for the five months ending in October was 2.8%, a decrease from 5.1% in the first five months of the year. This decline was influenced by lower prices for cars and airfares, as well as slower growth in housing and service costs. Core inflation is often considered a more accurate predictor of future inflation trends.
This easing of inflation led to optimism among investors, resulting in a surge in stock and government bond prices. They anticipated an end to the Fed’s rate hikes and began focusing on potential future rate cuts. The Nasdaq and S&P 500 saw their largest single-day increases since April, while the Dow Jones Industrial Average also rose significantly. Treasury yields, particularly the benchmark 10-year note, fell sharply, indicating a rise in bond prices.
Bitcoin and Fear & Greed
The development is particularly significant for the crypto market, including Bitcoin. After experiencing a considerable increase of nearly 40% over five weeks, Bitcoin’s price has been hovering around the US$ 37,000 (AU$ 57,000) mark, indicating a period of stability following this rapid growth.
The impact of inflation data on Bitcoin and other cryptocurrencies is closely watched by investors. Typically, higher interest rates, which offer an alternative to riskier assets like Bitcoin, suggest that scenarios with lower interest rates could be favourable for Bitcoin’s value. However, the flat CPI report could alter this dynamic. If inflation had accelerated faster than expected, it might have negatively influenced crypto prices, potentially reversing some of the gains made in October.
Meanwhile the Fear and Greed index dropped nine points from yesterday, indicating a shift from greed towards neutral investor sentiment.
Ark Invest CEO and CIO Chimes In
Cathie Wood asserts that the Federal Reserve has excessively tightened its monetary policy, leading to potential deflation, and anticipates significant interest rate cuts if her analysis proves correct. She also predicts the possibility of a negative CPI inflation rate sometime next year, a view that diverges from the general Wall Street consensus.
The Federal Reserve has overdone it; we’re going to see a lot more deflation going forward. If we’re right, and they’ve gone way too far, they’ll have to cut fairly significantly.
Given the actual inflation data, the focus now shifts to how this will influence the broader financial market’s approach to crypto. This could either sustain the recent gains in Bitcoin’s price or introduce new dynamics into the market. The interplay between inflation rates, interest rates, and cryptocurrency valuations continues to be a critical factor in understanding the movement of digital asset prices.
At the time of writing, BTC had experienced a 2.7% decline in the past 24 hours, dropping to US $35,425 (AU$ 54,580), according to CoinMarketCap.
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