Bitcoin Price Loses Momentum as US CPI Falls to 3.1%, Yet Remains Above Expectations
US Inflation Surpasses Expectations, Prompting Fed to Reconsider Monetary Policy
The US Consumer Price Index (CPI) has unexpectedly dropped to 3.1%, exceeding economists’ predictions and indicating a heated economy. This could lead the Federal Reserve to reassess its monetary policy stance in the coming months. Meanwhile, Bitcoin is losing momentum after surpassing the $50K milestone.
Advertisement
The US Bureau of Labor Statistics (BLS) revealed on Tuesday that the annual inflation rate in the US, measured by the Consumer Price Index (CPI), declined to 3.1% in January from 3.4% in December. However, this figure surpassed market forecasts that anticipated a decrease to 2.9%. Furthermore, the Core CPI, which excludes the volatile costs of food and energy, rose by 3.9% during the same period, matching the increase seen in December and exceeding analysts’ prediction of 3.7%.
According to a report from the Labor Department, January experienced higher-than-expected inflation due to continued high costs for shelter, impacting consumers. The Bureau of Labor Statistics noted that the consumer price index, which measures a wide range of prices for goods and services paid by consumers across the economy, increased by 0.3% during the month.
When excluding the more fluctuating prices of food and energy, the core CPI rose by 0.4% in January, resulting in a 3.9% increase from the previous year. This acceleration surpassed the anticipated rates of 0.3% for the month and 3.7% for the year.
The announcement had an immediate and significant impact on the stock market, with futures linked to the Dow Jones Industrial Average dropping by over 250 points, and yields on Treasury securities sharply rising.
This data release is crucial for the Federal Reserve as it seeks to find the right balance for monetary policy in 2024. Despite calls from financial markets for substantial interest rate cuts, Federal Reserve officials have maintained a cautious tone in their statements, emphasizing the importance of being guided by actual economic data rather than preconceived expectations.
Federal Reserve officials have expressed optimism that inflation will return to their 2% annual target, primarily expecting a slowdown in shelter costs throughout the year. However, the increase in January poses a challenge for the central bank, which is considering easing the most restrictive monetary policy stance it has adopted in over two decades.
BTC Price Falls Below $50K
Following this news, the price of Bitcoin dropped from its two-year high of $50K to a low of $49,200. Higher interest rates make borrowing more expensive, which can cool economic activity and reduce speculative investments, including those in cryptocurrencies like Bitcoin.
Cryptocurrencies are considered riskier assets, and during times of economic uncertainty or inflation concerns, investors may shift their portfolios towards safer assets, such as bonds or gold.
Tags
Cryptocurrency