Everyone was eagerly awaiting the future data, and finally, the US July Inflation data was released. The expectation for the September meeting had shifted to a 50bp cut with the latest PPI data. According to FedWatch data, the market is pricing in the cut at 100%. The Fed usually makes decisions in line with the prevailing market sentiment.
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Reaching the 2% inflation target in the short term is not feasible, but we have seen a significant drop from the 40-year peak over 9%. This is not surprising given the Fed’s unprecedented rate hikes and maintaining them at the peak for an extended period. However, keeping rates at the peak for over 12 months has started to cause significant damage on the employment front.
Today’s inflation data was crucial for investors for this exact reason. Data meeting or falling below expectations, when read alongside weakening inflation data and recession fears, should push the Fed towards a 50bp cut in the next meeting (in 35 days).
So, what direction did the inflation data take? The expectation for core inflation was 3.2%, and it was 3.3% the previous month. The annual headline inflation expectation was 3%. A slight increase of 0.2% was expected for the monthly figure, compared to the previous month’s -0.1%. The data came in as follows:
- US Inflation Announced: 2.9% (Expectation: 3%, Previous: 3%)
- US Core Inflation Announced: 3.2% (Expectation: 3.2%, Previous: 3.3%)
Due to inflation falling below 3%, cryptocurrencies should now start the expected rise. If we do not see consecutive good data convincing Fed members of the inflation drop, this situation will be discouraging for risk markets.
