Markets Climb As Inflation Keeps Cooling Off

The year-to-year inflation rate came in at 7.1% today, strengthening the market’s belief that inflation may indeed have peaked and that the Federal Reserve might soften its aggressive monetary policy.

Inflation Loses Steam

It appears that inflation really is cooling off.

The Consumer Price Index (CPI) for November came in at 7.1% today, solidifying hopes that inflation may have peaked and entered a steady downtrend. The figure is 0.2% less than the 7.3% print expected by analysts for this month; it also marks a 0.6% decrease from the October CPI print, which reached 7.7%.

Markets reacted positively to the print, with BTC and ETH initially rising by 4.65% and 6% respectively on the daily—briefly touching $18,000 and $1,350—before falling back down slightly. At the time of writing, the top cryptocurrencies were each trading for $17,780 and $1,327. 

The reaction from legacy markets was similar. The S&P 500 opened up by 2.60%, the Nasdaq by 3.60%, and the Dow Jones by 2%. However, they quickly gave back a portion of their gains and are currently only up 1.31%, 0.59%, and 2.43% respectively.

Signs of abating inflation are certainly welcomed by the crypto market, as they foreshadow a potential easing of the aggressive monetary policy the Federal Reserve has been pursuing throughout the year. To combat the surge in price of core consumer goods, the U.S. central bank began raising interest rates in March—first by 25 basis points, then 50 bps, and subsequently 75 bps every month, quickly bringing them from roughly 0% to approximately 4%.

Federal Reserve Chair Jerome Powell indicated in a public appearance two weeks ago that the next rate hike would possibly only be 50 bps, citing a need to “moderate the pace of… rate increases” due to the inflation cooldown and the lagging effect of rapid rate increases on the economy. However, Powell reiterated his intention to bring the inflation rate back down to 2%. The central bank will be conveying their decision with regards to the next hikes tomorrow at 14:00 EST.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.