This week’s CPI and PPI prints, along with the Fed’s Sept. 16 rate decision, could determine whether Bitcoin can secure $80,000 as a support level.
Bitcoin (BTC) sees its first weekly close above $80,000 since early May as clouds gather over the US inflation outlook.
US inflation data returns to the forefront this week after surprise employment data pressured crypto and risk assets. The August prints of the Producer Price Index (PPI) and Consumer Price Index (CPI) are due for release on Thursday and Friday, respectively.
CPI matched market expectations at 0.1% month-on-month and 3.4% year-on-year last month, continuing on from softer-than-anticipated June results. Although the numbers paint a positive picture for inflation, Kevin Warsh, chair of the US Federal Reserve, stated that these data prints alone did not support the case for reassessing financial policy.
“Each of these broad inflation measures have fallen significantly from their highs of a few years ago, but progress through the past couple of years has been more modest, and while this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved,” he said at the Jackson Hole economic symposium in late August, referring to the Fed’s “preferred” inflation gauge, the Personal Consumption Expenditures (PCE) index.
In response to the speech, markets priced in an increased likelihood of Federal Reserve rate hikes at its next meeting on Sept. 16. The latest data from the CME Group’s FedWatch Tool shows that consensus favors a 0.25% rate hike, with odds at 58.4%.
Fed target rate probability comparison for September FOMC meeting (screenshot). Source: CME Group
Fears of rate hikes were also spurred by last week’s nonfarm payrolls data, which came in far stronger than expected and included upward revisions of prior figures. The US economy added 162,000 jobs in August against a prior estimate of 56,000.
A stronger labor market reduces the need for the Fed to loosen policy, cementing the potential for rate hikes with core inflation still above its 2% target. Markets have maintained a hawkish outlook on rates. This is despite Fed governor Christopher Waller voicing support for an ongoing rate-hike pause and US president Donald Trump renewing pressure on the Fed to enact rate cuts last week.
“The Fed Board, with its great new leader, must get smart - BE PATRIOTS for a change. High interest rates put the U.S.A. at a very unfair disadvantage, and I won’t allow that to happen!” he wrote in a post on Truth Social.
Both PPI and CPI have the potential to alter the outlook prior to the meeting, with crypto market volatility often accompanying inflation-data prints.
Commenting, trading resource Mosaic Asset Company noted that the strong jobs numbers could still offer stocks a silver lining.
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