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The Federal Reserve’s inflation target is pegged at 2% on an annualized basis, and it is unclear in which direction the Feds will tilt with respect to its inflationary control.
The rate of inflation growth in the United States is slowing down as the latest data released by the Bureau of Labor Statistics (BLS) shows that the Consumer Price Index (CPI) reading for July came in at 8.5% when compared to the same period last year. Analysts were expecting an average of 8.8% and the reduced CPI reading is giving credence to the “peak inflation” narrative that has been making the rounds lately.
The index for all items less food and energy increased 0.3 percent in July, up 5.9 percent over the year. The reading aligns with projections from analysts from Deutsche Bank AG (ETR: DBK) who said ahead of the data release:
“We expect the headline year-on-year rate to finally dip after energy prices have fallen of late. We are looking for 8.8% (from 9.1%) with consensus a tenth lower.”
The inflation reading for June came in at 9.1% which represented the highest jump in about three decades. With the reading now receding, we can argue that the Federal Reserve’s monetary policies and interest rate hikes are becoming more fruitful.
Speaking ahead of the data release, Fidelity Digital Assets director of research Chris Kuiper told The Block ahead of time that a “lower-than-expected inflation print or falling inflation will likely be viewed as positive for digital assets as it gives the Federal Reserve and other central banks a reason to pause or even reverse tightening the money supply.”
The Federal Reserve’s inflation target is pegged at 2% on an annualized basis, and it is unclear in which direction the Feds will tilt with respect to its inflationary control. While inflation is no longer growing, the readings are still very high, and more curbs can be expected.
Crypto Market Reaction to the US Inflation Reading
The US inflation reading has ignited a bullish sentiment in the digital currency ecosystem with the combined crypto market cap surging by 4.73% to $1.14 trillion at the time of writing per data from CoinMarketCap.
The sentiment seen in the nascent crypto world is perhaps hinged on the likelihood that the tapering inflation will force the Feds to taper down their aggressive monetary tightening, a move that can pave way for more cash inflow which will, in turn, reinstate the position of scarce digital assets like BTC as the perfect store of value.
The current sentiment in the financial ecosystem is now being juxtaposed with the fundamentals that are inherent in the industry which includes the growing institutional inflow of cash into Ethereum in anticipation of the Merge which is scheduled for mid-September. In all, the industry seems to have seen the balance it is craving for a while, and the market bulls might be in for a temporary ride.