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The pace of inflation slowed for a fourth straight month in June, a sign of progress in the Federal Reserve’s inflation fight. Investors have been hoping to see inflation slow, which could bolster the case for rate cuts in the coming months.
The Bureau of Labor Statistic’s Consumer Price Index (CPI), which tracks price movements across a broad range of goods and services, rose 3.0% in the 12 months through June, according to new data released on Thursday. After a forecasted a 3.1% increase, the report came in below economist expectations.
On a month-to-month basis, inflation decreased for the first time since May 2020, falling 0.1% in June. Following a flat reading for consumer prices in May, every other CPI report so far this year has seen inflation clocked in at 0.3% or 0.4% monthly.
Earlier this week, Fed Chairman Jerome Powell said the U.S. central bank was pleased with the slowdown in inflation so far this year, but policymakers are looking for greater signs of confidence that inflation is heading back down to the Fed’s 2% target before it cuts rates.
Meanwhile, the Bitcoin price distanced itself from four-month low, climbing past $59,000. At the time of writing, BTC is showing gains of 2.8% in the past week, the asset has been rattled recently by supply overhangs related to the repayment of Mt. Gox creditors and the German Government’s selling of seized Bitcoin.
Jake Ostovskis, OTC Trader at Wintermute, told Decrypt in a written statement that Bitcoin’s supply overhang fears are “now either priced-in or dissipating,” however, with markets likely looking for the next narrative to digest.
“This is likely to take the form of U.S. monetary policy into year-end, and therefore [it] gains in importance,” he added of the Fed’s forthcoming moves.
Stripping out volatile food and energy prices, so-called core prices ticked up 0.1% from May. Ostovskis said that among analysts a range of forecasts reflects diverging views about the pace of easing in shelter costs, which have remained stubbornly high.
While CME traders had penciled in a 65% chance that the Fed delivers an initial rate cut in September, some analysts are braced for hawkish comments that could dull excitement after Thursday’s inflation reading, such as Valentin Fournier, an analyst at BRN.
“Possible hawkish comments, as seen after the strong PCE on June 28, could lead the market to react as if inflation is not decreasing,” he said in a written statement, referring to the Fed’s preferred inflation gauge.
“We continue to expect positive news from the CPI, but we anticipate the Fed will delay rate cuts until September,” he added.
However, some analysts think Thursday’s inflation reading readies the scene for a first rate cut in September.
A benign report runs along those lines, Grayscale’s Head of Research Zach Pandl previously told Decrypt. As an alternative money system that competes with the U.S. dollar, he added lower rates would likely bolster Bitcoin’s price along a weaker dollar.
Today, the Fed’s path to 2% inflation seems relatively attainable compared to two years ago. Amid a red-hot economy roaring back from pandemic-related pressures, inflation reached a more than four-decade high of 9.1% in June 2022.
Following that inflation reading two years ago, the price of Bitcoin and Ethereum tumbled 4% and 6%, respectively, within an hour of the report’s release. In the coming months, similarly volatile swings could follow key data, Ostovskis of Wintermute wrote.
“In the coming months, the market will focus heavily on jobs and inflation data—both of which are used to guide rate cut timing,” he said. “I expect significant volatility around these data points.”
Edited by Stacy Elliott.
