Yesterday something happened on the Bitcoin market that allows for positive predictions about its price for the coming weeks. The forecast has also turned positive regarding the Fed’s monetary policy.
Summary
The issue of inflation
Indeed, yesterday the data on inflation in the USA for April were released.
The results turned out to be decidedly positive, although in line with the forecasts.
The general annual inflation rate has decreased from 3.5% to 3.4%, after having increased for two months. However, the current level is still significantly higher than the 3% of June 2023.
But what interests financial markets the most is the annual core inflation rate, that is without food and energy products, because it turns out to be much less volatile and much more representative of the general trend.
The fact is that the core inflation rate has returned to decrease.
This, unlike the general one, has never risen since May of last year, even though its descent from 5.3% a year ago marked three stops. The first in November 2023, when it stopped at 4% from the previous month, and the second in January 2024, when it stopped at 3.9% from the previous month.
Even in March it had stopped at 3.8% in February, so for a good six consecutive months it had only dropped by 0.3 percentage points at a rate of 0.1 percentage points every two months.
Yesterday this trend stopped, because the decrease was only 0.2 percentage points in one month. Basically, from November 2023 to March 2024, it had decreased by 0.2 percentage points in 4 months, while in April it took only one month to decrease by another 0.2 percentage points.
The Fed’s monetary policy and forecasts on the price of Bitcoin
From November onwards, the chances that the Fed could start cutting interest rates have slowly decreased.
Since July of last year, the interest rates have been fixed at 5.5%, and although the markets were convinced that the Fed could start cutting them as early as March, so far it has not done so yet.
At this moment the markets are absolutely convinced that the Fed will not cut rates even in June, while there is a slightly higher chance that they may cut them as early as July.
However, most analysts argue that before September there is not much likelihood of a cut, even though in light of yesterday’s data, the chances of a first cut in September have increased significantly.
It should not be forgotten that on November 5th there are elections in the USA, and September 18th could be the only real opportunity for the Fed to cut rates before the elections, thus favoring the current government.
However, it must be remembered that the President of the Fed, Jerome Powell, was appointed by the Republican Donald Trump in 2018, even though in recent years he has governed in apparent harmony with the Democratic government of Joe Biden.
One thing that the Fed has already announced is the easing of QT starting from June.
The price of Bitcoin
Yesterday the US stock markets reacted very well to the inflation data, even though it turned out to be in perfect line with the forecasts.
That -0.2% in just one month for core inflation has still brought some optimism, so much so that for example the S&P500 index jumped by 1.1%, which is not bad for traditional stock markets.
Note that with yesterday’s jump, it set a new annual high for 2024, which is also the all-time high.
One could also describe this situation as slightly euphoric, so much so that even Bitcoin has reacted very well.
The price of BTC is still 11% below the absolute highs of March, but it is significantly recovering compared to the $57,000 on May 2nd.
Yesterday it made a small jump of 7% which brought it back to the levels of April 24, four days after the halving.
Fed and the predictions on the price of Bitcoin
According to Bitfinex analysts, investors may have interpreted yesterday’s inflation data as the beginning of a trend change.
The idea is that interest in risk-on could return, as demonstrated by the new highs of the S&P500, triggering a new bullish trend.
Bitfinex analysts point out that yesterday the price of Bitcoin immediately jumped by about +2.5% right after the news on inflation, even though the released data were perfectly in line with expectations.
In addition, the Fed has announced its intention to reduce quantitative tightening starting in June, and all of this is considered favorable for risk-on assets.
However, analysts point out that inflation is still above 3%, and that PPI inflation data also showed a third consecutive monthly increase the day before yesterday. For this reason, they do not take for granted that the Fed is already considering the current scenario suitable to start cutting rates.
So it seems that once again financial markets have tried to anticipate the change in trend, which however may not have fully occurred yet, and this theoretically makes a reversal of the situation possible in case of unexpected negative events.
However, if there were no negative surprises, yesterday could have been the beginning of the long-awaited trend change that has been expected for weeks.
