Crypto Market Reacts to Lower Than Expected U.S. Inflation
Inflation in the United States may be slowing down after lower than expected numbers for the month of July. Here’s what happened and what to expect moving forward:
U.S. Inflation Decelerates
Inflation numbers came in lower than expected in the United States for July, which could be good news for the cryptocurrency market. The Bureau of Labor Statistics use the Consumer Price Index (CPI) to track inflation. For those who may need a refresher, the CPI measures the average change over time in prices paid by urban consumers for a market basket of goods and services.
The CPI increased 8.5% in July from a year ago, lower than economists’ expectations of 8.7%. Inflation appears to be cooling when compared to the previous month of June, when the CPI increased 9.1%.
The reason for the drop is due to many reasons, but largely because of a drop in gasoline prices, which fell 7.7% month-over-month. The lower than expected numbers have investors speculating that inflation may have peaked, which could create a lot of positive implications for the crypto market.
Crypto Market’s Reaction
The crypto market reacted positively to the news, with Bitcoin (BTC) jumping over 6.2% on the day to well over $24,000 USD and Ethereum (ETH) moving up over 12.2% to over $1,879 USD. Most other coins followed suit, with Ripple (XRP), Cardano (ADA), and Solana (SOL) all ending the day in positive territory.
As of the time of writing, crypto appears to be maintaining its rally, signalling sustained investor confidence in the market at this point in time.
Implications For Crypto
Lower than expected inflation is undoubtedly a good thing for the crypto markets, as it may signal to the Federal Reserve (the central bank of the United States) that their interest rate hikes are working.
Throughout 2022, the Federal Reserve has been adamant about its desire to raise interest rates in an effort to combat inflation. To put their thought process into perspective, if money is more expensive to acquire (through higher interest rates), less spending will occur, potentially lowering record inflation rates.
So if inflation begins to slow down, that could signify that the Federal Reserve may not raise interest rates as much as previously thought this year. This could positively affect the crypto markets as it would mean a lower likelihood of a recession, and more money running through the economy.
It is worth noting that the CPI only measures prices in the United States, so it is not necessarily indicative of what is happening globally. However, if other countries are also seeing a decrease in inflation, it could signify that the crypto market is starting to stabilize.
The slowdown in inflation in the month of July seems to have had a positive effect on the crypto market. What happens in the future is up in the air, but the lower than expected numbers could signal less interest rate hikes in the future by the Federal Reserve, which is good news for both the economy and the crypto market. It will be interesting to see how the markets react after the Federal Reserve concludes its next FOMC meeting on September 21, 2022, and comes to a decision.
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Written by: Daniel Zychla
Writer, content marketing at Netcoins.