Is a rate cut in September likely? Bitcoin rises above $66,000

Author: Mary Liu, BitpushNews

On Wednesday afternoon, soft U.S. Consumer Price Index (CPI) data boosted investor expectations for interest rate cuts, leading to gains in financial markets.

Data from the U.S. Bureau of Labor Statistics showed that the "core" CPI, excluding food and energy prices, rose 3.6% year-on-year. This data was in line with market forecasts, showing a slight cooling from March's 3.8% increase, with April's CPI rising 0.3% month-on-month, below the expected 0.1%.

This marks the first time in over four months that the data met or fell below market expectations, leading traders to view it as a positive signal for interest rates and the possibility of rate cuts before the end of the year.

According to the CME FedWatch tool, following the CPI release, the market currently estimates a roughly 70% chance that the Federal Reserve will begin cutting rates at its September meeting, up from 45% last month.

Benefiting from the low CPI, the S&P 500, Dow Jones, and Nasdaq indices all reached or approached historical highs on Wednesday, closing up 1.17%, 0.88%, and 1.40%, respectively.

Bitpush data showed that Bitcoin was on an upward trend on Wednesday, soaring from a low of $61,315 to a high of $66,420 in the afternoon. As of the time of writing, BTC was trading at $66,035, up 7.21% in 24 hours.

Altcoins rose under the momentum of Bitcoin, with nearly all tokens among the top 200 by market capitalization increasing on Wednesday. Livepeer (LPT) performed the best, rising 20.8%, followed by Axelar (AXL) and GMX (GMX), both up 18%. Ribbon Finance (RBN) saw the largest decline, down 21.5%, while Pepe (PEPE) fell 2.6% and Starknet (STRK) dropped 1.9%.

The current overall market capitalization of cryptocurrencies is $2.38 trillion, with Bitcoin's dominance at 54.7%.

A Cooling CPI Does Not Equal Victory Over Inflation for the Fed

Although the market may have reacted positively to the CPI data, Youwei Yang, Chief Economist and Vice President of BIT Mining, warned that it is still too early to declare victory over inflation.

In a report, she stated, "Despite the implementation of easing policies and the CPI inflation rate reaching 3.4% as expected, the current global economic landscape remains close to a dangerous mild stagflation scenario. Today's policymakers seem to underestimate the risks of stagflation, echoing the situation of the 1970s, even though extreme inflation rates from that era have not emerged."

She added, "Despite these risks, many investors and policymakers remain overly optimistic, as evidenced by the historically high price-to-earnings ratios in many major market sectors. When the market faces potential risks, cryptocurrencies are always the first to react, which is why they have been declining over the past few months, even though AI-driven stock growth seems to have created a worrying false prosperity in financial markets."

Bitfinex analysts also expressed concerns, warning that the decline in CPI does not guarantee that the Fed will lower interest rates.

They stated, "Investors see this as a bullish shift, as it marks the first decline in CPI inflation in the past three months, and this comes after the Fed announced its intention to gradually taper quantitative tightening. The CPI has formed a local top over the past two months, so this is seen as favorable for risk assets, but it has had the opposite effect. However, our inflation rate remains above 3%, and yesterday's PPI inflation data showed an increase for the third consecutive month. While the decline in inflation data is good news, investors will have to wait and see if the Fed considers this sufficiently positive news to cut rates."

Leena ElDeeb, a research assistant at 21Shares, stated, "CPI alone is not enough to persuade the Fed to cut rates, especially considering that this data is still far above the 2% target, as expressed in the FOMC meeting two weeks ago, making hopes for rate cuts in the short term slim."

ElDeeb warned, "With doubts about rate cuts still lingering, the recovery may be slow. Typically, higher interest rates reduce the attractiveness of risk assets like tech stocks and Bitcoin, as investors can earn substantial returns from safer options like U.S. Treasuries. This has prompted short-term investors to shift towards traditional markets."

ElDeeb added, "However, while Bitcoin may have a short-term impact on the market, many investors hold a long-term view on Bitcoin as a global asset that can prevent currency devaluation and economic instability. Although the Fed's policies may trigger short-term volatility, they will not fundamentally alter Bitcoin's long-term trajectory."

She concluded, "Therefore, Bitcoin currently holds a unique position as a risk-bearing and risk-averse asset, leading to distinct market dynamics."

Dan Tapiero, CEO of investment firm 10T Holdings, believes that if Bitcoin can regain support at $65,000, its price could continue to soar by over 45%. He stated on the X platform, "After breaking $65,000, it will go directly to $90,000… then more, with a very clear horizontal overlapping flag consolidation about to complete."

Market analyst Mustache agreed with Tapiero's speculation, noting on Wednesday, "Bitcoin's weekly Stoch RSI has just crossed bullish," indicating that "the biggest move is about to come."