New Inflation Read Signals Fed Rate Cut in Tailwind for Bitcoin’s Price

It could be a buy the rumor, sell the news situation with Bitcoin price and the Labor Department’s CPI report Wednesday morning.

Spot Bitcoin on crypto exchanges did rise sharply Tuesday and rallied into Wednesday morning but the landscape changed later that day and BTC fell to $58,000.

Economists were expecting a lower inflation readout from the U.S. Bureau of Labor Statistics this week. A survey of economic analysts by Dow Jones ahead of the report’s release found that respondents anticipated an average of 0.2% increase on prices across the board and the core inflation metric.

CPI Inflation Report Comes In Cool

“At this point, the inflationary pressure that we saw build has really been dissipated significantly,” said Jim Baird, Plante Moran Financial Advisors chief investment officer. According to Baird, inflation has now become “a nonissue [ … ] There’s this broad expectation that the worst is easily behind us.”

Baird added:

“Given the focus on the relative weakening in the labor market, given the fact inflation is coming down pretty rapidly, and I expect it will continue over the next few months, it would be a surprise if the Fed didn’t start moving towards easing very quickly, presumably at the September meeting.”

The falling consumer inflation metric gives the U.S. central bank plenty of room to cut rates later this year. It could even begin cutting them as soon as September.

Bitcoin Price Rallies Ahead of Inflation Print

The Fed has been concerned about slowing labor markets and GDP. Its twin mandate from Congress is to keep unemployment as low as possible while stabilizing prices.

When the Fed lowers rates or signals that it’s going to reduce them again in the near future, BTC’s price tends to rally. That’s due to the economics of supply and demand as well as the nature of Bitcoin.

The original and class-leading cryptocurrency has a fixed supply of 21 million bitcoin (BTC). The network will never issue more units of the cryptocurrency than this hard supply cap. Moreover, it issues new supply at a decreasing rate that is cut in half on a regular schedule every four years.

As a result, the economics of bitcoin’s price inversely correlates to U.S. dollar interest rates. BTC rallied for the week and 24-hours ahead of the U.S. inflation report and fell 3% after the Labor Department published the report and confirmed economist expectations.