BTC and ETH surges after CPI report

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Published on

December 13, 2022

Key points:

  • U.S. CPI rose 0.1% month-on-month in November, a more-than-expected slowdown from October's 0.4% rise, signaling progress by the Federal Reserve in efforts to reduce rising inflation.
  • The report pushed cryptocurrency prices higher on expectations that less concern about rising consumer prices could give the Federal Reserve more cover to ease rate hikes.
  • On a yearly basis, CPI rose 7.1%, below the 7.3% forecast by economists polled by FactSet.
  • According to Deutsche Bank, rates could hit 5.1% before the Fed stops campaigning.
  • Jerome Powell is scheduled to speak at 2:30 p.m. after the FOMC rate hike decision. EST on Wednesday.

U.S. consumer prices rose 0.1% month-on-month in November, a more-than-expected slowdown from October's 0.4% rise, signaling progress by the Federal Reserve in efforts to reduce rising inflation.

The report pushed cryptocurrency prices higher on expectations that less concern about rising consumer prices could give the Federal Reserve more cover to ease rate hikes.

On a yearly basis, the Labor Department said on Tuesday that the CPI rose 7.1%, below the 7.3% forecast by economists polled by FactSet.

Bitcoin, the largest cryptocurrency that has been relatively stable so far in December, rose 1.6 percent to around $17,930 in the minutes after the report; it was up 5.2 percent over the past 24 hours. Ether, the native cryptocurrency of the Ethereum blockchain and the second-largest cryptocurrency overall, was up 6.9 percent in 24 hours to $1,335.

Traders have been watching the data for signs that the Federal Reserve's rate hikes this year will help slow the pace of gains in consumer prices, which hit a decade-high earlier this year. In general, the tighter monetary policy puts downward pressure on the prices of risky assets from stocks to cryptocurrencies.

The Federal Open Market Committee (FOMC), the Fed's monetary policy-setting group, meets behind closed doors this week, with a decision due on Wednesday, while officials are expected to offer fresh forecasts for the future path of economic indicators.

The Labor Department reported that core CPI - which excludes food and energy, which tend to be more volatile - rose 0.2 percent in November, also at a slower pace than in October.

The weaker-than-expected inflation data came a day after the New York Fed's monthly survey of consumer expectations showed respondents expected annual inflation to run at 5.2%.

The November CPI is the last major economic report for 2022 and the last major data the Federal Open Market Committee (FOMC) will see before this week's meeting on Tuesday. The two-day meeting is scheduled to end with a statement at 2 p.m. on Wednesday. A new summary of economic forecasts by ET and top Fed officials, colloquially known as the "dot plot."

"Tuesday's CPI and Wednesday's FOMC meeting will undoubtedly set the tone for financial markets as we head into next year," analysts at Deutsche Bank wrote in a note, predicting another 50 basis point rate hike from the Fed ( 0.5 percentage points) the Fed on Wednesday.

Final rates could be higher in a new forecast

Fed Chairman Jerome Powell has previously said that he and his colleagues expect rates to peak sometime next year, up from a previously reported 4.9%. According to Deutsche Bank, rates could hit 5.1% before the Fed stops campaigning.

"We expect the dot plot to turn hawkish ... reinforcing the Committee's view that policy needs to remain tight for longer to bring inflation back to target," the report said.

Analysts at major French lender BNP Paribas expect the final rate to reach 5.25% by March and remain there until the end of the year.

"These announcements will underscore the likelihood that interest rates will remain hawkish for an extended period - possibly even challenging current market pricing," they wrote in a note.

Powell is scheduled to speak at 2:30 p.m. after the FOMC rate hike decision. EST on Wednesday.


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