Some analysts believe that today’s CPI report will be strong enough for the Fed to pause its historic run of interest rate hikes.
The US Bureau of Labour Statistics will publish the CPI (Consumer Price Index) data for May later today, leaving some investors teetering on the edge of their seats. Analysts expect the reading to show that the price increases that have plagued consumers for the past two years have finally slowed down.
The Dow Jones consensus estimate predicts that CPI for May will show that all-items inflation increased by just 0.1%, equating to a 4% annual rate. Excluding food and energy components, CPI is forecast to rise 0.4% and 5.3%, respectively.
If the estimates are accurate, it’s possible that the Fed will finally put a pause on its 14-month interest rate hike.
“The most encouraging thing is the year-over-year growth rates are going to come down pretty sharply,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC. “The headline number is going to feel good, it’s going to be encouraging, showing inflation is moving in the right direction. More fundamentally, I think inflation is moving in the right direction.”
What is the CPI and why does it matter to crypto investors?
The CPI is a measure of the average change over time in the prices paid by consumers for a basket of goods and services. It’s used to track inflation and provides insights into the purchasing power of consumers within an economy.
For crypto investors, the CPI serves as a crucial indicator of market sentiment and investment strategies. Historical data shows that during periods of higher inflation, cryptocurrencies such as Bitcoin have experienced increased demand as investors seek to preserve their wealth, indicating that many investors treat Bitcoin as an inflation hedge.
This trend is evident when examining the crypto market during the peak of inflation over the past decade, where Bitcoin’s value surged by over 400%.
Read more: CPI inflation eases to lower-than-expected 4.9%; Bitcoin rises above $28k
More importantly though, CPI data has the potential to influence central bank policies, including interest rates. Since March 2022, the Federal Reserve has imposed 14 interest rate hikes in a bid to bring soaring inflation back down to a healthy 2%.
While the number is still not at 2%, the US Federal Open Market Committee (FOMC) hinted last month that it’s considering pausing the run of rate increases that have taken its benchmark overnight interest rates from about 0% in early 2022 to the current range of 5.0%-5.25%.
Fed Chair Jerome Powell optimistically stated that “we’re closer, or maybe even there”, when asked about the end-point of rate increases.
Dean Baker, co-founder of the Center for Economic and Policy research, also told CNBC that, “Inflation has been trending downward for the last year. If this trend continues, the Fed can declare victory and focus on the employment side of its mandate.”
He added, “However, inflation is still well above the Fed’s [2%] target, so the question is whether the downward path is continuing or whether we have hit a plateau.”
Others, including CME Group, have also expressed more cautious estimates, predicting that one final hike is likely to be implemented in July before an extended pause.
The CPI will be released today at 8:30am ET.
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