Inflation trends in the U.S. have had a significant impact on the cryptocurrency market and investor expectations of Federal Reserve policy changes. On Thursday, the U.S. Consumer Price Index (CPI) report for September showed an increase in consumer prices, but a slowdown in underlying inflation, leading to a drop in cryptocurrency values.
The CPI rose by 0.4% last month, a slower pace than the 0.6% increase seen in August, and advanced 3.7% year-on-year up to September. The slowdown in inflation led to a decline in cryptocurrency values, with Bitcoin trading for $26,812 at the time of writing.
John Haar of Swan Bitcoin noted that investors had anticipated persistent inflation, while James Butterfill of CoinShares (ST:CS) highlighted the impact of rising airline fares and oil prices on core inflation. Dessislava Aubert from Kaiko pointed out potential volatility in the crypto markets due to low liquidity and volumes.
Despite high inflation making risk assets like Bitcoin less appealing, some investors view it as a safe-haven asset. With the rise in Treasury and long-term bond yields, experts predict the Fed will keep rates constant at their next meeting on November 1.
However, optimism about potential rate cuts contrasts with rising food prices and a surge in final demand goods and services. Analyst Peter Schiff suggests that investors may be overlooking the reality of rising inflation and the Federal Reserve's struggle to balance these increases with an economy burdened by debt.
Alongside rising costs, real average hourly earnings have dropped, further impacting Americans' wallets. Service prices, considered a leading indicator of future price inflation, have also seen a significant increase. These factors together with rising shelter costs and producer prices suggest potential future consumer price hikes.
Despite some relief from falling prices for used vehicles, apparel, and medical services, the overall picture is one of an inflation rate significantly higher than the Federal Reserve's 2% target.
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