Crypto Markets Rally on Bets Fed Will Slow Pace of Rate Increases

by Arthur · March 31, 2023

The Fed will likely opt for a small rate hike – if it rises at all, that is

Crypto and stocks rose on Friday after the release of data showing inflation in the US cooling in February.

Bitcoin and Ether are up just over 2% after US inflation rose at a slower-than-expected rate, signaling the Federal Reserve may cool the pace of rate hikes.

Crypto rises on the prospect that the Fed may slow its rate hikes. Lower interest rates make borrowing cheaper, which in turn means that there will be more capital available to buy risky assets. Digital assets have rebounded this year from their worst bear market since 2019, in part as speculation mounts that America’s fight against inflation with hawkish monetary policy is finally paying off.

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Cooling inflation

The Commerce Department said Friday that the price index for personal consumption expenditures, excluding volatile food and energy prices, had increased three-tenths of a percent month-on-month, and 4.6 percent year-on-year.

This measure tracks the “broadest set of goods and services,” according to the San Francisco branch of the Federal Reserve, and is often called the Fed’s preferred inflation gauge.

ETH Price + BTC Price + SPY Price + QQQ PriceSource: The Defiant Terminal

According to crypto investment firm GCR, the core PCE price index numbers were better than expected. And they show that US inflation has cooled since January, when it rose six-tenths of a percent month-on-month, and 4.7% year-on-year.

Banking crisis

Coupled with a banking crisis triggered by the Federal Reserve’s aggressive rate hikes, the data has cemented investor predictions that the Fed will opt for a small hike at its next meeting on May 2, if it chooses to raise rates at all.

A week ago, just after the emergency takeover of Credit Suisse by rival UBS, and just a week after the collapse of Silicon Valley, Silvergate and Signature banks, investors were betting the Fed would keep interest rates flat at its May 2 meeting, according to CME FedWatch- the tool.

But the fear of a widespread banking crisis has eased somewhat, and the odds of a weak interest rate rise increased at the beginning of the week. That belief hardened on Friday after the release of inflation data. Investors now believe the odds of no hike or a 25 basis point hike are about even.

Even the odds of no hike and 25 bps are increasing. Source: FedWatch.

Biggest Movers

Stocks rose on Friday, with the S&P 500 and Nasdaq rising 1.3% and 1.6%, respectively.

In crypto markets, big winners on Friday included the floating stake protocol Lido, along with Ethereum rivals Cardano and Fantom, which each grew more than 6% day-to-day.

LDO price + ADA price + FTM priceSource: The Defiant Terminal

Meanwhile, Binance’s BNB token was flat. Investors fled the token on Monday after the Commodity Futures Trading Commission sued Binance for allegedly allowing Americans on its international platform.