TLDR
- September’s CPI is expected to show a 3.1% annual inflation rise.
- The Fed’s focus remains on the labor market despite rising inflation.
- Higher-than-expected CPI could reduce rate cut chances in the coming months.
- Bitcoin briefly spiked above $111,000 ahead of the CPI release.
Crypto traders are closely watching the delayed US inflation report for September, set to be released on Friday. The report, originally delayed due to the ongoing government shutdown, is expected to show a 3.1% annual increase in inflation. This will mark the first time this year that the Consumer Price Index (CPI) exceeds 3%. The outcome of the report could influence the crypto market, particularly as investors assess the likelihood of Federal Reserve rate cuts.
CPI Report Expected to Exceed 3%
The September CPI report is anticipated to show a monthly increase of 0.4%, leading to an annual inflation rate of 3.1%. This would be the first time in 2025 that inflation exceeds the 3% mark. While the government shutdown has delayed the release, it remains a critical data point for investors, especially in light of its potential impact on interest rate expectations.
Economists had originally forecast a CPI rise of 0.4% for September, and if the data matches expectations, it will confirm inflation’s persistence above 3% for the first time this year. A higher-than-expected CPI print could have a cooling effect on investor sentiment, potentially decreasing the odds of a Federal Reserve rate cut.
Impact on Federal Reserve Rate Cuts
Despite the anticipated uptick in inflation, market participants remain focused on the Federal Reserve’s stance on rate cuts. While inflation data may influence the Fed’s decision-making, analysts expect that the central bank’s priority will continue to be the weakening labor market. The likelihood of a rate cut at next week’s Fed meeting is currently priced at 98.3% according to CME futures markets.
Though some analysts suggest that a higher-than-expected CPI figure could reduce the chances of rate cuts in the near term, others argue that the Fed’s primary concern remains the labor market. A higher CPI could still prompt the Fed to proceed with rate cuts, as inflation alone may not be enough to halt the central bank’s ongoing policy adjustments. The mixed signals between inflation and employment data will be a key focus for traders in the coming weeks.
Potential Effects on Crypto Markets
The crypto market is particularly sensitive to macroeconomic data, and Friday’s CPI release is likely to influence market movements. If the CPI comes in below expectations, with a figure closer to or below 3%, it would likely boost risk-on assets, including cryptocurrencies. Lower inflation could lead to increased expectations for rate cuts, which generally supports higher-risk investments such as crypto.
Conversely, if inflation exceeds 3.1%, this could cause concerns over tighter monetary policies and dampen market enthusiasm for riskier assets. Analysts suggest that such a scenario could lead to a decline in crypto prices as investors adjust their expectations for future economic conditions.
Bitcoin has already seen slight price fluctuations ahead of the report, briefly spiking above $111,000 before returning to around $110,500. These small movements reflect traders’ caution as they await the outcome of the CPI report, which could provide clearer signals on the Fed’s future actions.
Government Shutdown Complicates Economic Outlook
The ongoing government shutdown has added an element of uncertainty to the economic landscape. While the CPI report is critical for understanding inflation trends, the shutdown has created delays and could complicate the Fed’s economic outlook for the rest of the year. As markets await the latest inflation data, the shutdown could influence other economic indicators, making it more difficult to assess the full impact on monetary policy.
The shutdown has also delayed other important data releases, which might affect economic forecasting. The uncertainty surrounding the government’s fiscal situation could add to volatility in both traditional financial markets and the cryptocurrency sector.
As traders brace for the CPI report, much of the market’s focus remains on what the inflation data will reveal about the broader economic environment and the Federal Reserve’s next steps.
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