Bitcoin smashes past $26K as CPI report shows inflation held steady in February
by James · March 14, 2023
Bitcoin surged past $26,000, a price not seen since last summer, on the back of the latest CPI print that showed US inflation remains alive.
The consumer price index (CPI) rose 6.0% during the 12 months through February, the Bureau of Labor Statistics (BLS) so Tuesday, meet economists’ expectations for the index, which tracks price movements across a wide range of goods and services.
Bitcoin and Ethereum jumped 5% and 4% to $26,295 and $1,778respectively according to CoinGecko. Other tokens, such as Dogecoin and Solanaalso rose, adds to gains from Monday.
Since hitting a 41-year high of 9.1% last June, inflation has shown signs of easing but remains well above the Federal Reserve’s 2% target.
On a month-to-month basis, rates rose 0.4 percent in February from January, matchng economists’ forecast. The largest monthly gains to which the CPI came from food, recreational services and shelter, which accounted for 70% of the monthly increase in the CPI.
Prices for shelter rose by 0.8% from January to February, an increase of 8.1% from a year ago. Energy prices fell 0.6% month-on-month after rising 2% in January.
The core CPI, which excludes volatile food and energy prices, came in slightly above economists’ expectations at 0.5% compared with 0.4%.
“Inflation is certainly not lickt off,” Wells Fargo chief economist Jay Bryson said Decryptadding that core inflation “is still well above where the Fed wants to see it.”
To tame inflation, the Fed has aggressively raised interest rates, making it more expensive for businesses and consumers to borrow and cooling the economy. Since raising interest rates from near zero last March, the Fed has taken rates to a target range of 4.50% to 4.75% – the highest since October 2007.
“If this would have printed well below expectations, they could have said, ‘Okay, let’s take a break,’ given everything that’s going on in the financial markets,” Bryson said, referring to the Fed. “But this complicates it a bit.”
Last December, the Fed estimated that interest rates would rise as high as 5.1 percent this year. And Fed Chairman Jerome Powell said earlier this month that interest rates will likely have to go higher, cites “financial data [has] come in stronger than expected” during congressional testimony.
But that was before the collapse of several US banks last week.
The Fed reacts to banking chaos
Crypto-friendly Silvergate Bank so there was a voluntary winding down of operations last Wednesday. Silicon Valley Bank then collapsed Friday, marking the second largest bank failure in US history. Signature Bank, another crypto-friendly institution, was turn off by regulators on Sunday. The government has insisted, time and againthat depositors in Silicon Valley Bank and Signature would be made whole.
Had the US banking sector not been thrown into a state of chaos, Tuesday’s inflation reading could potentially have led to the Fed continuing to raise interest rates at their meeting next week.
But because of the possibility that Silicon Valley Bank’s problems were partly the result of higher interest rates, the impact of the report is not as clear. US Treasury Secretary Janet Yellen proposed Sunday that issues in Silicon Valley Bank were the result of “a higher interest rate environment” as opposed to problems with the technology sector.
Yesterday, cryptocurrency prices rose as investors recalibrated expectations of future interest rate increases from the Fed. The possibility of the Fed raising interest rates by 50 basis points next week was brushed aside as traders believed a pause was more likely.
“The news on the macro front does not fully explain why crypto markets continue to rally, especially considering that the industry is still trying to find new banking partners after the closure of three crypto-friendly banks,” said Kaiko’s head of research Clara Medalie Decrypt. “Binance’s announcement that it would liquidate 1 billion BUSD in exchange for BTC, ETH and other assets is a strong catalyst for the recent price action. Overall, the recovery of USDC, Binance’s BUSD announcement and easing inflation have sparked a market rally, but the industry faces significant headwinds.”
Fed futures markets on Monday expected the U.S. central bank to cut interest rates sometime soon, with a 7% chance of rates being where they are now or higher by the end of this year, well below the Fed’s forecast of 5.1% . .
The likelihood that the Fed will pause rate hikes dropped to 15% Tuesday after the release of the CPI report, down from 35% the day before, according to CME FedWatch Tool.
The probability of the Fed delivering a 25 basis point increase solidified on 85%.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.