Inflation slowed to 2.9%. Bitcoin did not react
Bitcoin's value remained nearly the same on Wednesday, following the release of an inflation measurement that showed cooler figures than anticipated.
The Bureau of Labor Statistics revealed that the Consumer Price Index (CPI), a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, increased by 2.9% for the year ending in July. This rise was below the 3% increase predicted by economists for the same period.
Compared to the previous month, July saw a 0.2% rise in consumer prices. This uptick follows a decline in prices from month to month for the first time since May 2020, observed in June.
After this announcement, Bitcoin's value stabilized at about $61,200, with a 3.9% improvement recorded over the last 24 hours, according to CoinGecko statistics. Similarly, Ethereum and Solana experienced increases of 3.9% and 3.8%, reaching values of $2,740 and $151, respectively.
The report from Wednesday highlights a trend towards the Federal Reserve's inflation target of 2%. It is anticipated that the U.S. central bank will loosen its monetary policy soon, having previously increased its benchmark interest rate to the highest point since 2007.
Since reaching a peak of 9.1% in June 2022, inflation has significantly decreased, influenced by the dampening effect of higher interest rates on economic activity due to increased borrowing costs. The inflation rate for July, dropping for the fourth consecutive month, marked the lowest point since March 2021.
Market participants are now largely anticipating a rate cut by the Federal Reserve in September, the magnitude of which remains the primary question. According to the CME FedWatch Tool on Wednesday, there's a 50% likelihood that the Fed will opt for a substantial reduction of 50 basis points, as opposed to a more modest cut of a quarter-percentage-point.
Concerns of a recession briefly surged this month due to weaker-than-expected job growth in July, causing a temporary dip in Bitcoin's value below $50,000. Additionally, the global markets felt the strain from the end of a yen-carry trade, triggered by Japan's central bank taking a firmer monetary stance. Nonetheless, positive U.S. service job data has somewhat mitigated negative sentiments, as noted by the market maker, Wintermute.
With the Federal Reserve pondering a probable reduction in interest rates, it navigates a precarious balance. Reducing rates too soon could inadvertently fuel inflation, whereas maintaining elevated rates could risk pushing the U.S. economy into a downturn.
Before making a final decision, the Fed will review additional data, including the Personal Consumption Expenditures data, its favored measure of inflation, scheduled for release on August 30.
