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Highlights
- The U.S. CPI came in below the expected 2.9%
- Bitcoin broke above $119,000 on the news. ETH broke above $4,400.
- The market had crashed earlier in the day.
- This boosts hopes of a September Fed rate cut.
The U.S. CPI inflation data has come in better than expected, providing a major boost for the crypto market. This has raised optimism about a September Fed rate cut, which is typically bullish for the market.
U.S. CPI Data Remains Steady at 2.7%
Bureau of Labor Statistics data shows that the inflation data came in at 2.7% year-on-year (YoY), lower than expectations of 2.8% and the same as last month. Meanwhile, the monthly inflation came in at 0.2%, below the previous reading of 0.3%.
Furthermore, core CPI data rose to 3.1% YoY, higher than the expected 3%. This represents a five-month high for this inflation metric. However, the data has provided a significant boost for the crypto market, with prices rising following the data release.
TradingView data shows that the total crypto market cap spiked from $3.9 trillion to $3.94 trillion following the CPI release. This is led by significant rallies in the Bitcoin, Ethereum, XRP, and Solana prices. Notably, ETH broke above $4,400 from an intraday low of $4,172.
As CoinGape reported, the crypto market had crashed ahead of the U.S. CPI data release. However, the report also noted that crypto prices were primed to rally if the yearly figure came in at 2.8% or lower.
More Reason For A Fed Rate Cut
This bullish outlook for the market stems from the fact that the Federal Reserve is now more likely to make a September Fed rate cut, based on the CPI figures. This Fed might have no choice but to do so with inflation still low while the labor market is weakening. Monetary easing policies inject more liquidity into the market and increase risk-on sentiment.
CME FedWatch data shows that there is now an 82.4% chance that the Fed will cut rates by 25 basis points (Bps) at the September meeting. Meanwhile, there is only a 17.6% chance that they will hold rates steady.
Some FOMC members have already indicated that they are leaning towards a September Fed rate cut even before the CPI release. The latest of them is Michelle Bowman, who urged her colleagues to vote for a rate cut. She also said that she favors three rate cuts this year.
However, Federal Reserve Bank of Kansas City President Jeff Schmid looks to be one of the FOMC members who are still holding out on a Fed rate cut. According to a Bloomberg report, Schmid said that he favors keeping interest rates on hold for the time being to prevent robust economic activity from adding to inflation pressures.
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