Bitcoin Surges as 4.9% CPI Suggests Fed Policy is Working

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Bitcoin (BTC) incurs slight upside volatility as U.S. Consumer Price Index (CPI) for April misses estimates, which may strengthen the case for a Federal Reserve (Fed) rate hike pause later this year.

The asset usually shows volatility from roughly six hours before the U.S. CPI announcement. However, like the S&P 500 and Dow Jones, it traded fairly flat in premarket trading. 

Cryptos Trade Flat, But Analysts Are Cautious

Its current price is around $27,981, buoyed 1.2% by lower-than-expected 4.9% headline inflation, Ethereum (ETH) is also muted at $1,840, according to Coingecko. Lower cap cryptos like Cardano and Dogecoin were down 0.2% and 0.5%.

Analysts estimated April’s annual U.S. headline CPI to be steady at 5%, with the core inflation, excluding volatile food and energy prices, going up to 5.5%.

Despite combining in lower, headline inflation is still far off the Fed’s 2% target. Core inflation matched expectations, coming in at 5.5% annually and rising 0.4% monthly.

U.S. Headline Inflation | Source: TradingEconomics

After the news, Bitcoin, whose 30-day correlation with the Nasdaq has reached 0.5, tracked U.S. futures upward. Treasury yields fell.

According to the MSCI World Index, which fell 0.1% this morning, most stocks have traded sideways in the past month, awaiting news from the Federal Reserve. 

The Fed said on May 4 that future rate hikes would depend on forthcoming data. It has increased interest rates by about 500 basis points in the last 14 months. Last month’s nonfarm payrolls report revealed hourly wage increases that may encourage more increases.

Fed terminal rate probability
CME Target Rate Predictions | Source: CME Group

At press time, markets still expect a rate pause at the Fed’s next meeting.

New York Fed Does Not Foresee Rate Cuts

New York Fed president John Williams said yesterday he doesn’t expect inflation to reach 2% before the next two years. 

Furthermore, his baseline forecasts do not predict any rate cuts this year.

“Because of the lag between policy actions and their effects, it will take time for the [Federal Open Market Committee’s] actions to restore balance to the economy and return inflation to our 2% target.” 

Asian stocks declined this morning as investors offloaded risk positions ahead of the CPI news. Tech stocks started the slide as an index tracking Chinese state enterprises fell over 1%. Shares of Tencent Holdings recorded their third straight day of decline.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.


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