Fed Rate Cuts Read New Inflation Signals Tailwind for Bitcoin Price

It may be buying the rumor, sell the news situation with the price of Bitcoin and the Labor Department CPI report on Wednesday morning.

Spot Bitcoin rose sharply on crypto exchanges Tuesday and rallied into Wednesday morning, but later that day the landscape changed and BTC fell to $58,000.

Economists were expecting a lower inflation reading from the US Bureau of Labor Statistics this week. A Dow Jones survey of economic analysts ahead of the report's release found that respondents had expected an average increase of 0.2% in across-the-board and core inflation.

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The CPI inflation report comes in cool

“At this point, the inflation that we've seen build up has actually fallen significantly,” said Jim Baird, chief investment officer at Plant Moran Financial Advisors. According to Baird, inflation is now “an unknown phenomenon.” [ … ] There is this widespread hope that the worst is simply behind us.

Baird added:

“Given the relative weakness of the labor market, with inflation falling rapidly, and I expect it to continue to do so over the next few months, it would be surprising if the Fed did not begin to ease. Very quickly, perhaps at the September meeting.”

A declining measure of consumer inflation gives the U.S. central bank plenty of room to raise inflation later this year. It can start cutting as early as September.

Bitcoin price rallies before inflation announcements

The Fed is concerned about a slowdown in the labor market and GDP. A twin mandate from Congress is to stabilize prices and keep unemployment as low as possible.

When the Fed cuts rates or indicates that they will cut again in the near future, the price of BTC tends to rally. That's due to the economics of supply and demand, as well as the nature of Bitcoin.

The original and class-leading cryptocurrency has a fixed supply of 21 million Bitcoins (BTC). The network will never supply more crypto units than this hard supply cap. Moreover, every four years, the regular schedule is cut in half by reducing the rate of new supply.

As a result, the economics of bitcoin prices are closely related to US dollar interest. BTC rallied for the week and 24 hours ahead of the US inflation report and fell 3% after the Labor Department published the report and confirmed economic expectations.