The U.S. Federal Reserve Looks to PCE for Confirmation on Rate Cuts
The U.S. Federal Reserve is focused on bringing inflation under the 2% target and relies on key economic data, such as Personal Consumption Expenditures (PCE), Consumer Price Index (CPI), and jobs, to make monetary policy decisions. While CPI and core CPI came in hotter than expected, the Fed still expects to cut rates in May, despite investors reassessing monetary policy prospects.
PCE Data Holds More Importance Than CPI Inflation Data
According to Jeffrey Gundlach of DoubleLine Capital, the upcoming PCE data is more important than the CPI inflation data. He believes that if PCE goes up, it will contradict the Fed’s talk of cutting interest rates. Gundlach expects the Fed to start rate cuts in June instead of May.
Morgan Stanley shares a similar outlook, stating that PCE is running closer to target than CPI. The divergence between these measures will concern Fed officials, and the bank anticipates rate cuts to begin at the June meeting.
Fed’s Delay in Fighting Inflation Worries Economist Peter Schiff
Economist Peter Schiff warns that the Fed has already lost the fight against inflation and delaying action will only harm the market and economy. Rising inflation will eventually lead to higher interest rates. Schiff believes this is bearish for the U.S. economy, stock and bond markets, and the dollar but bullish for gold.
PCE Missing Market Estimates Will Impact Global Stock Markets
If PCE misses market estimates, it will have a brutal impact on global stock markets but less effect on the crypto market this time. The likelihood of bank failures and Bitcoin halving will drive more money into cryptocurrencies, especially Bitcoin.
Bitcoin Bulls Remain Strong for an Upcoming Rally
The crypto market experienced a decline and Bitcoin’s price dropped below $50,000 after the CPI release. However, the global crypto market cap remained resilient at $1.87 trillion. Investors are likely to bet on Bitcoin and Ethereum due to current sentiments, as gold prices have decreased.
The CME FedWatch Tool shows a 52% probability of rate cuts in June after the CPI release, with no probability of rate cuts in March and May.
Although there was a selloff in the spot market, crypto derivatives traders remain bullish. Crypto futures open interest slightly dropped, while BTC and ETH options open interest increased. BTC’s price rose to $49,894 after dropping to $48,472, but trading volume declined by over 10% in the last 24 hours.
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