Bitcoin and Ethereum take the lead following further signs of inflation retreating

Consumer prices have fallen slightly in December, with Bitcoin and other cryptocurrencies are holding their ground on hopes of a smaller interest rate hike from the Federal Reserve.

The Consumer Price Index (CPI) rose 6.5, the Bureau of Labor and Statistics said Thursday.% down in the 12 months to December from 7.1% in November. Analysts had expected the index, which tracks price movements for a wide range of goods and services, to show inflation slowing to 6.5% on an annual basis.

Bitcoin placed remarkably Earnings before and after the release of the report, 5% from the day before $18,275According to CoinGecko data.

Ethereum flower 5% also 1401 dollars and other altcoins like Cardano and PolkadotIt rose to 3.8%.

“The market interprets this as a dove for the most part,” said James Butterfill, Head of Research at CoinShares. Open the password. “From a crypto perspective, this is likely to be supportive”

Major stock indexes also reacted positively to the report, which is a sign of similarities between cryptocurrency and traditional markets, Laguna Labs CEO Stefan Rust said.

“It’s a worrying trend to see Bitcoin keep pace with traditional financial indicators and stock markets,” he said. “As we know, Bitcoin was built to be an alternative financial system to Wall Street, and we may lose our way.”

The rate of inflation on a monthly basis showed that prices decreased by 0.1% in December after rising 0.1% in November and 0.4% in October. Decline It was partly explained by the month-on-month decrease in the price of gasoline and fuel oilIt fell to 9.4% and 16.6%, respectively.

Core CPI, a measure of inflation that excludes volatile food and energy prices, rose a little with 0.3% rose to 5.7% year-on-year in December, in line with analysts’ expectations.

The annual inflation rate, which reached 9.1% in June last year, has steadily declined since the index peaked at its highest 12-month reading in 40 years. However, inflation remains well above the Fed’s annual target of 2%.

To control rising prices, the Fed raised its key interest rate seven times last year from near zero to 4.25%-4.5%. By raising interest rates, the Fed makes it more expensive for businesses and consumers to borrow, thereby cooling the economy.

As interest rates rise, investors shun riskier assets like stocks and cryptocurrencies for the guaranteed returns offered by more conservative assets like U.S. Treasury Bills, commonly referred to as government-backed risk-free returns.

After raising interest rates by 75 basis points for four consecutive policy meetings, the US central bank showed signs of letting off the gas when it introduced a 50 basis point hike in December.

February rates are expected to rise

Thursday’s inflation report is likely to influence the central bank’s next policy meeting in February, when the Fed is expected to raise rates again. But the Fed also considers other economic factors when making decisions, such as the strength of the US labor market.

The Fed has essentially walked a tightrope as it aims to combat decades of inflation. Inflation can be entrenched in the financial system by being too hawkish, but if the Fed raises rates too aggressively, it can send the economy into recession.

However, analysts are more confident that the Fed will continue its more dovish approach to rate hikes after Thursday’s CPI report. The odds of the Fed raising rates by a quarter percent rose slightly to 94, compared to half a percent.% according to 76% from the previous day CME FedWatch tool.

“I think they’re going to go up 50 basis points and stay the course for now,” CoinShares’ Butterfull said. “Remember, what the Fed should do and what they will do are different things.”

At an event hosted by Sweden’s central bank, Sveriges Riksbank, Fed Chairman Jerome Powell acknowledged that rate hikes are painful, but said they are critical to maintaining the economy’s long-term health. CNN Business.

“Price stability is the foundation of a healthy economy and provides immeasurable benefits to the population over time,” he said. “But restoring price stability when inflation is high may require unpopular measures in the short term.”

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