Inflation in the US fell to 4% in May, hitting a year-to-date low from March 2021. This raises the possibility that the Federal Reserve (Fed) will pause interest rate hikes at its meeting. coming on Wednesday.
The monthly consumer price index (CPI) rose just 0.1%, down 0.3% from analysts’ expectations, further reinforcing the possibility of a pause in rate hikes.
PRICE PRESSURE IN PCE AND CPI HINT TO BOOK INTEREST RATE INCREASED IN JULY
At the start of this week, futures markets predicted a 78% probability that the Fed will keep rates at 5 – 5.25% as the unemployment rate rises from 3.4% in April to 3.7% in May.
After the CPI was announced, the probability of a pause in interest rate hikes increased to 94%.
The Fed has raised interest rates 10 times since March 2022 in an attempt to stabilize prices after keeping interest rates at zero and buying government bonds to stimulate the US economy.
For now, markets expect that rate hikes will pause in June as several key indicators suggest the economy is cooling off.
However, the personal consumption expenditures (PCE) index, the Fed’s preferred measure of inflation, is not in favor of a rate hike, similar to the CPI.
PCE has grown an average of 4.3% over the past three months, while wages have increased by only 0.3%. In addition, core CPI, which excludes food and energy prices, rose 0.4% for the third consecutive month, from March to May.
These numbers could prompt the Fed to pause rate hikes in June and possibly resume in July.
John Leer, economist at Morning Consult, said:
Should not be “fooled” by the current mitigation of inflation. The Fed may pause rate hikes tomorrow [Wednesday], but it will have to keep raising rates if it wants to keep inflation under control.
BITCOIN GROWS SMALL WHEN THE FUTURE CONTRACT MARKET “PROMOTES”
The Dow Jones Industrial Average rose 75 points after the CPI data was released. S&P 500 and Nasdaq futures also gained 0.3% and 0.6% respectively. Bitcoin price rose 1%, between $26,200 and $26,300, but then fell below $26,100.
The asset has risen nearly $10,000 from $16,600 on January 1, 2023, thanks in part to expectations that the Fed will pause or lower interest rates.
The Federal Reserve’s interest rate announcement on Wednesday could be the factor driving the asset’s price higher.
The central bank’s economic forecast report for the year-end will also be released this week. This event will test investors’ confidence in Bitcoin as a safe haven asset.
see more : The market is “red on fire” but Litecoin (LTC) continues to maintain its uptrend