US PPI Cools To 1.7%, Is Fed’s 1.25% Rate Cut Plan Still On Table?

The data from the United States Bureau of Labor Statistics, released on Thursday, show that the US PPI inflation increased 0.2% in August. This aligns with the Dow Jones consensus estimate teased before the readings came out. This important inflationary gauge comes amid increasing speculations in anticipation of a rate cut by the Federal Reserve.

US PPI Report Comes Higher Than Expected

The Producer Price Index measures the final demand goods and services costs that producers receive. Aside from food and energy, the released data shows the US PPI increased by 0.3%, which is a little higher than the 0.2% consensus estimate. Noteworthy, this core increase remained the same even when trade services were excluded.

Based on 12-month trends, the headline US PPI saw a 1.7% increase. Similarly, the annual rate hit 3.3%, excluding food, energy and trade. Service prices contributed significantly to the PPI measure, with as much as a 0.4% monthly increase. This came from services like trade, transportation and warehousing. Guestroom rental with a 4.8% surge, was also a major contributor to the metric.

Chris Larkin, managing director of trading and investing for E-Trade at Morgan Stanley noted that the alignment of PPI’s repetition of yesterday’s US CPI inflation reading as well as its jobless claims with expectations, clears the decks for the Fed to kick off a rate-cutting cycle.

“The markets are anticipating an initial 0.25% cut, but the discussion will soon turn to how far and fast the Fed is likely to trim rates over time,” He added.

Lower Fed Interest Rates Cut to Boost Bitcoin Price

Earlier this week, Citi analysts predicted a 1.25% Fed rate cut in 2024 in the midst of cooling US CPI inflation data. These analysts cited stable core PCE inflation and a focus on labor market conditions. As prices are no longer going up at a fast rate, lower inflation and reduced borrowing rate could fuel a boost in the US economy.

Risk-on assets like Bitcoin could see a massive surge in their prices. This would mark a pivotal outlook considering that the broader crypto ecosystem is facing a downturn and prices are experiencing slow growth. There has been a major worry on potential crypto and stock crisis ahead per a leaked memo from the US SEC. With interest rate clarity in the coming days, investors might get closure, a trend that might fuel market stability.

Currently, the flagship cryptocurrency is trading at $57,780.16, corresponding with a 3.08% increase within the last 24 hours. Even with this slight recovery, Bitcoin’s weekly chart is displaying a clear downtrend with a string of lower highs and lower lows.