Crypto Markets Prepare for Volatility as Fed Rate Cuts Stay Off The Table

The US CPI data came in hotter than expected on Tuesday, signaling that inflation might not be as controlled as the Fed might want it to be. The data also raised bets that the Fed’s rate cuts in March and May are most likely off the table. A delay in rate cuts could indicate a turbulent trading for crypto markets in the future.

Hotter than expected CPI data dents markets

The consumer price index (CPI) for January showed 3.1% inflation, according to figures released by the U.S. Bureau of Labor Statistics. Economists polled by Reuters expected consumer inflation to rise 2.9% annually in January after 3.4% growth in December. The core figure increased 0.4% month over month in January when volatile food and energy components were excluded, as opposed to the predicted 0.3% increase. It increased 3.9% annually as opposed to the projected 3.7% growth.

The hotter-than-expected numbers have dented sentiments in the larger financial markets, including that of the crypto sphere.

Fed’s rate cuts possibly delayed till July

The US CPI data has cemented beliefs that the Fed’s rate cuts will possibly be delayed for some time. Since the beginning of the year, investors have been making predictions about how fast and sharply the Fed and other institutions may cut interest rates. However, with today’s hotter-than-expected data, market participants are now pricing in bets that a rate cut will only happen in July. This swap in timeline comes after previous anticipations of rate cuts in March and May.  The unexpected increase in the U.S. CPI today would give the Fed more grounds to keep current rates the same rather than cut them in the future.

Fed Rate cut by May just plummeted from 60 to 35%.

Bearish. pic.twitter.com/3QgEEZF232

— Tarek Mansour e/acc (@mansourtarek_) February 13, 2024

In an interview with Yahoo Finance, Wolfe Research chief economist Stephanie Roth interpreted the January CPI data a little differently. She stated that January usually has seasonality issues, suggesting that the high data might be just an effect of the seasonality. She anticipates that a rolling deceleration in the inflation numbers should likely occur in March and forward.

Will crypto face the wrath?

The Federal Reserve’s rate decisions have long been a crucial tool for investors to assess assets. Lower interest rates frequently devalue government securities, which increases the attraction of assets like cryptocurrencies. The hotter-than-expected data from today points to impending instability in the world’s financial markets, which might continue to put pressure on the cryptocurrency markets.

Following the announcement of US CPI statistics, Bitcoin prices declined to nearly 2%. As of this writing, the price of the OG-crypto had dropped to $48,666.29 from an earlier price of $49,536 apiece.  The movement of Bitcoin was in tandem with larger markets as the Dow e-minis, S&P 500 e-minis, and Nasdaq 100 e-minis all plunged after the announcement.

A delay in Fed rate cuts will likely put pressure on global financial markets. In such a case, if there were a more major collapse in the global markets, there would be some spillover effects into the cryptocurrency markets. This could show up as a gradual fall in pricing or a decline in transaction volume.