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BTC Key inflation data ahead of Fed meeting: Complex economic picture, crypto market faces test
The last major inflation report was released on Friday ahead of next week's high-profile Fed meeting. The report further paints an already complex economic picture, showing strong job growth, stubborn inflationary pressures and oil prices exceeding $100.
Expectations to raise interest rates have soared sharply in the past few weeks, which may pose a potential threat to risky assets such as Bitcoin.
All key data in place
According to Kobeissi Letter analysts, the U.S. central bank now has all key parts of the puzzle. Because before the key FOMC meeting on September 15 - 16, almost all important economic data had been released in the past few weeks. Taken together, these data tend to be hawkish.
The jobs report released a few weeks ago showed that the U.S. economy added 162,000 jobs in August, almost triple expectations. This suggests that the labor market is stronger than expected and may be enough to withstand tighter monetary policy. Subsequent PPI data showed that the producer price index soared to 5.4%, up from 4.8% in July. Other PPI sub-indicators also pushed up the Fed's preferred PCE inflation indicator.
CPI data released on Friday confirmed that the consumer price index is still well above the Federal Reserve's 2% target. In addition, oil prices have exceeded the US$100 per barrel mark in the past week, and diesel prices have also hit record highs in the country. This increases the risk that energy and transportation costs will spread further to other areas of the economy.
To sum up, everyone, we now have all the relevant data available before the September 16 Fed meeting: the U.S. PPI inflation rate was 5.4%, the U.S. economy exceeded expectations, adding 162,000 new jobs in August, and the U.S. CPI inflation rate was 3.4%. At the same time, we are also facing an oil price environment of more than $100.
What does this mean for Bitcoin?
BTC's initial reaction was instructive, with the asset experiencing sharp swings on Friday. It first fell from $77,000 to $76,000, then quickly soared to nearly $80,000, and finally fell back to its starting point. After the CPI data was released, the probability of a 25 basis point rate hike initially jumped to 79%, and Reuters later reported that futures markets priced the probability at 87%, up from 72% before the inflation data was released.
Typically, higher interest rates will support bond yields and a stronger U.S. dollar, while tightening financial conditions and reducing demand for risky assets such as Bitcoin. Therefore, this is the most direct risk facing Bitcoin.
However, the subsequent rally may indicate that investors have fully priced in most of the expected rate hikes. As a result, the focus of the September 16 meeting is no longer on whether the Fed will raise interest rates (which is now widely expected), but on how hawkish Kevin Warsh and other policymakers will appear after the meeting, and whether the market believes there will be further rate hikes.
