Prices of bitcoin (BTC) and ethereum (ETH) initially fell today, before later trimming losses, as traders feared more aggressive monetary policy tightening after the US Consumer Price Index (CPI) showed that inflation in the world’s largest economy has reached 7.5% year-over-year, coming in well above analysts’ expectations.
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The change in consumer price index (CPI) since last month came in at 0.6%, above the 0.4% expected. Meanwhile, the so-called Core CPI, which excludes food and beverages, came in at 6% year-over-year.
The rise in CPI was the largest since February 1982, while the rise in Core CPI was the largest since August the same year, the US Bureau of Labor Statistics wrote. In terms of specific drivers of inflation, used car prices rose by a whopping 40.5%, while food prices rose 7%, the most since 1981, the Wall Street Journal reported.
As of 15:15 UTC BTC was down by 3.5% while ETH was down by 4.5% in the 45 minutes that have passed since the inflation figure was released. The price of BTC stood at USD 43,431, down 1% on a 24-hour basis, while ETH stood at USD 3,112, down 2% over the past 24 hours.
However, at 16:30 UTC, BTC had turned earlier losses into gains, rising by 0.8% in the three hours that have passed since the report came out to reach a price of USD 45,330. Over the same time period, ETH still remained down by 1.6% to a price of USD 3,200.
Meanwhile, the US S&P 500 stock index was down by 0.66% since the release of the report, after falling as much as 1.2% earlier in the day. Over the same time period, the traditional inflation hedge gold was up by 0.5% to USD 1,839.
“This is not encouraging news for the [US Federal Reserve (FED)] in its battle to get inflation heading back towards the 2% target,” James Knightley, chief international economist at Dutch bank ING told the Wall Street Journal.
Ahead of the release of today’s inflation data, White House spokesperson Jen Psaki had already said that they expect the number to be “high,” and that a year-on-year number of above 7% “would not be a surprise.”
Continued higher-than-expected inflation numbers in the US are now also causing some analysts to rethink whether the Fed will hike rates by 0.25 percentage point per hike, as is widely expected, or if some of the hikes this year will be 0.5 percentage point.
“If we don’t start gliding lower in line with expectations soon, the market is going to be pricing some 50bps Fed hikes into the equation for 2022,” Jim Reid, Head of Global Fundamental Credit Strategy at Deutsche Bank, said in a comment ahead of today’s inflation data, according to Reuters.
The same sentiment was also shared in a note by Morgan Stanley analysts, including the bank’s Global Head of Macro Strategy Matthew Hornbach.
“[…] an upside surprise next Thursday would mean further talks of the Fed raising rates 50bp in March. At a minimum, calls for the Fed to hike at every meeting this year will look much less off-base,” the note said.
Meanwhile, European banking group Nordea said in a note published yesterday that they expect year-over-year inflation to come in at 7.4%, above the 7.2% consensus among analysts.
This “could translate into a small selloff in bonds, wobbly equities and a supported dollar,” the bank wrote yesterday.
– Low Real Interest Rates Support Asset Prices, But Risks Rising for Market
– Two Main Macro Scenarios in Play for Bitcoin & Crypto in 2022 – CryptoCompare
– Bitcoin, Ethereum Could Benefit If Stocks Drop After Fed Tightening – Strategist
– Inflation Is the Biggest Test Yet for Central Bank Independence
(Updated at 13:51 UTC with the market reaction. Updated at 14:23 UTC with additional details, comments, and the market data. Updated at 14:28 with an additional comment. Updated at 16:50 UTC with the latest market data.)