The final major inflation report before next week’s highly anticipated Federal Reserve meeting went live on Friday and built on an already complicated economic picture, showing strong employment, sticky inflation, and $100 oil prices.
Rate-hike expectations have skyrocketed over the past couple of weeks, which could spell trouble for risk-on assets like bitcoin.
All Data Is In
According to the analysts at the Kobeissi Letter, the US central bank now has all the pieces of the puzzle as essentially all important economic data came out in the past few weeks before the key September 15-16 FOMC meeting. And the combination leans hawkish.
The jobs report from a few weeks ago showed that the US economy had added 162,000 jobs in August, nearly triple expectations, signaling that the labor market remains a lot stronger than anticipated and is likely to withstand tighter monetary policy. Then came the PPI data, showing that producer inflation surged to 5.4%, up from 4.8% in July. Other PPI components fed into the Fed’s preferred PCE inflation gauge also strengthened.
The CPI from Friday confirmed that consumer inflation remains well above the Fed’s 2% target. In addition, oil prices jumped past $100 per barrel in the past week, while diesel prices reached record levels in the country. This led to an increased risk that higher energy and transportation costs could spread further through the economy.
What Does it Mean for Bitcoin?
BTC’s initial reaction was quite telling as the asset experienced massive volatility on Friday. It first dropped from $77,000 to $76,000 before it rocketed to almost $80,000, and then slipped back to its starting point. The probability of a 25-basis-point rate hike initially jumped to 79% after the CPI release, while Reuters later reported that futures were pricing the odds at 87%, up from 72% before the inflation data.
Higher rates typically support Treasury yields and the dollar while tightening financial conditions and reducing demand for risk assets like BTC. Hence, the most obvious risk for bitcoin.
However, the subsequent recovery could suggest that investors may have already priced in much of the anticipated rate hikes. As such, the September 16 meeting becomes less about whether the Fed increases them, which is widely expected now, and more about how hawkish Kevin Warsh and the other policymakers sound afterward and whether markets believe additional hikes are coming.
Source: CryptoPotato
