In February, the US Consumer Price Index remained unchanged at 2.4%. The price of the leading cryptocurrency surged by 2.3% to $71,000.
Hourly chart of BTC/USDT on Binance. Source: TradingView.
The price of Ethereum rose by 2.8%, nearing $2100.
Hourly chart of ETH/USDT on Binance. Source: TradingView.
The inflation data fully aligned with analysts' forecasts.
The Core Consumer Price Index (Core CPI), which excludes food and energy prices, increased by 0.2% over the month. This figure met market expectations, slightly down from January's 0.3%.
On a year-over-year basis, core inflation stood at 2.5%, exactly matching the consensus forecast and the previous month's results.
Opinions and Forecasts
According to experts surveyed by Bloomberg, February's figures do not yet account for the war in Iran, which has already triggered a rise in fuel and energy prices.
Experts warn of concerning trends in another key inflation indicator—the PCE index. Its core components from last month indicate a minimum increase of 0.4%. This deviates from the Fed's target annual rate of 2%, even without the effects of the Middle Eastern conflict.
“In the future, rising energy costs could push March's CPI to around 3%,” noted Bloomberg economists Anna Wan and Troy Duy.
Karen Manna, investment director at Federated Hermes, described the current statistics as “background noise.” She stated that in light of the situation in Iran, the pricing of risk assets continues to be driven by geopolitical factors rather than economic reports.
Christopher Hodge from Natixis highlighted the key issue of how the energy shock will impact the economy. He outlined two possible scenarios:
- Rising energy prices will act as a “tax on consumption.” Increased spending on gasoline and heating will reduce household budgets for other goods. Demand will drop, and inflation will begin to decrease.
- Expensive energy will fuel inflationary expectations. The public will become accustomed to rising prices and will start to factor this into their wage demands. Inflation could become entrenched.
The expert believes the Fed will lean towards the first scenario. However, he cautioned that time will tell whether the transfer of inflation from temporary factors (like oil prices) to core metrics and expectations will accelerate this time. If so, combating rising prices will become significantly more challenging.
Fed Rate
Investors interpreted the data as confirmation of a pause in the Fed's monetary policy easing cycle. The probability of maintaining the current rate at the meeting on March 18 stands at 99%. The chances of a rate cut in April have dropped to 11%.
Source: CME FedWatch.
Wan and Duy expect a moderate rise in unemployment and a slowdown in core inflation in the second half of the year. This will provide the regulator with some maneuvering room.
“We expect a rate cut of 100 basis points by the end of the year,” the economists emphasized.
Market Reactions
Futures for major US indices showed mixed dynamics. The Nasdaq fell by 0.04%, while the Dow Jones dropped by 0.07%. Meanwhile, the S&P 500 gained 0.07%.
The yield on 10-year US bonds rose to 4.18%.
Oil continues to rally amid the Middle Eastern conflict—in just three weeks, crude prices have soared by 80%. Over the last 24 hours, WTI rose by 2.2%, while Brent increased by 2.1%.
Due to supply disruptions through the Strait of Hormuz, the International Energy Agency announced the release of 400 million barrels of oil from strategic reserves to help stabilize the market.
Notably, Bitfinex analysts identified oil prices as the main driver of Bitcoin's price.