US CPI Data Reads Hotter Than Expected: Here’s All You Need To Know

NOIDA (CoinChapter.com)—The US Bureau of Labor Statistics’s announcement of the latest Consumer Price Index (CPI) data on April 10 shattered market expectations, and not in a good way.

The markets expect CPI to rise 3.4% year-over-year in the upcoming report and the annual CPI to go lower. Moreover, the US CPI data holds particular significance for crypto and traditional markets since it clarifies the Federal Reserve‘s future actions.

However, the US March consumer prices defied market expectations, with the CPI rising 0.4% month-over-month against the predictions of 0.3%. Moreover, the CPI rose to 3.5% Y/Y, 0.1% more than market expectations of 3.4%.

The hotter-than-expected readings might impact the chances of a Fed rate cut in June. Shelter and gas combined contributed over half of the overall monthly increase.

A retest of 4.51% is nearly assured with the higher-than-expected CPI. If that doesn’t hold, 4.7% is the next stopping spot for the 10-year yield.

Ira Jersey, Bloomberg Intelligence Chief US Interest Rate Strategist, said

Crypto Markets and the CPI Data

The crypto market, particularly Bitcoin, has shown volatility in anticipation of the CPI release. Bitcoin’s trading activity has fluctuated between $64,000 and $73,000 over the past week. Additionally, US spot ETFs noted an increase in trade volume.

According to Glassnode, daily volumes surged to approximately $14.1 billion in mid-March, matching the peak of the 2020-2021 bull market. However, recent weeks saw a decline to around $7 billion per day.

Bitcoin’s price dropped 2.5%, momentarily retracting from its ascent to $69,300 during Asian trading hours. Other major tokens like Ether, Solana, and Cardano mirrored this decline, highlighting the sector’s sensitivity to macroeconomic indicators.

The data suggests a heightened market activity level, albeit with signs of cooling.

However, following the release of the CPI data, CoinMarketCap data showed that Bitcoin and other major cryptos started rallying in the last 1 hour.

The higher-than-expected CPI data would mean the FOMC would likely take a “cautious approach toward rate cuts,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities.

Reaction Of Traditional Markets

The release of CPI data is crucial for traditional markets, as it influences the Federal Reserve’s monetary policy decisions, particularly regarding interest rates. As indicated by the CPI, an acceleration in inflation rates often influences market expectations for the Federal Reserve’s interest rate cuts.

The expectations for the CPI data to influence market volatility are grounded in historical precedence, where similar economic indicators have led to significant market movements.

Following the announcement of hotter-than-expected CPI data, S&P 500 futures dropped by nearly 1.5%, while Treasury 10-year yields rose to 4.5%.

The Federal Reserve’s response to inflation trends, reflected in interest rate adjustments, directly affects investment flows and market sentiment in traditional financial markets.

Moreover, bets on a June rate cut have diminished as market participants factor in the latest CPI data in their predictions. The Fed will likely go for just two rate cuts in 2024 instead of the earlier planned three.