Bitcoin Rises as Investors Look Past Fed Rate Hike After Inflation Data

Bitcoin Climbs After Inflation Data Fuels Rate Hike Outlook

Bitcoin rose on Friday after U.S. inflation data came in higher than expected, but investors appeared to focus on the slowing annual pace rather than the increased likelihood of a Federal Reserve rate hike. The cryptocurrency climbed back to just under $80,000, up more than 2% since the data release.

The core Consumer Price Index (CPI), which measures inflation excluding volatile food and energy prices, increased by 0.3% in August, faster than the 0.2% forecast. However, the annual core inflation rate fell to 2.4%, marking the slowest pace since early 2021.

Key Market Movements

• Bitcoin price surged over 2% to nearly $80,000.
• Ethereum (ether) led major cryptocurrencies with an 8.3% gain in 24 hours.
• Fed rate hike odds jumped to 90% following the inflation report.
• Traditional markets like Nasdaq, S&P 500, and DJIA also rose by over 1%.

Reactions from Fed Watchers and Economists

UBS analysts noted that Federal Reserve Chairman Kevin Warsh had set a tough tone at Jackson Hole, and with the inflation data supporting higher rates, the Fed is likely to follow through. They said it would be a "massive blow to credibility" if the Fed did not act.

Economist Daniel Lacalle warned against hiking rates into a recovering job market, calling it a "massive policy mistake." He suggested the Fed should use balance sheet management instead of rate hikes.

Why Inflation and Fed Policy Matter for Crypto

Cryptocurrency prices have tracked changes in Fed rate expectations closely this week. The inflation data confirmed that a rate hike is almost certain at the Fed's next meeting, but markets still moved higher, indicating investors are focusing on the long-term picture rather than short-term policy changes.

The core CPI data showed inflation is slowing on an annual basis, which might ease concerns about persistent high inflation. However, the monthly increase suggests the Fed may need to keep rates high for longer.

What Happens Next

The Federal Reserve is expected to raise interest rates at its policy meeting next week, with a 90% probability according to market data. A quarter-point increase would take the target range to 375 to 400 basis points.

Traders will be watching for any further signals from the Fed on future rate decisions and inflation trends.

Sources

• CoinDesk