Crypto’s Volatile Week Continues as Inflation Softens to 7.7%

The Consumer Price Index declined by 40 basis points in October. 

Inflation Cools to 7.7%

U.S. inflation has declined for the fourth consecutive month. 

The Bureau of Labor Statistics published the latest Consumer Price Index data Thursday, confirming that inflation softened to 7.7% in October.

The 7.7% figure marks a 40 basis point decline since September’s print. Inflation has been falling since it hit a four-decade high of 9.1% in June, though the Federal Reserve has made it clear on repeated occasions that it hopes to see inflation come in closer to 2%. Today’s 7.7% figure is 0.2% less than analysts’ 7.9% expectation. 

The crypto market has reacted positively to the data. Bitcoin and Ethereum both jumped on the news that inflation has cooled more than expected. Although Bitcoin is still down 2% on the day after the bump, Ethereum has registered a 5% increase. However, the bounce has done little to repair the damage done by the recent FTX insolvency crisis, which saw Bitcoin drop to a new yearly low earlier this week.  

Though inflation is falling, it’s remained sticky over the past few months, defying the Fed’s best efforts to tame the numbers. The U.S. central bank announced its fourth 75-basis point interest rate hike on November 2, causing another stock market selloff. It’s widely believed that the Fed will hike 50 points at next month’s Federal Open Market Committee meeting, bringing the funds rate to 4.25% to 4.5%. 

While crypto investors have been calling for a Fed pivot for months now, this week’s FTX drama could have a lasting impact far beyond the U.S. central bank’s actions. Even if the Fed flips its stance to dovish over the coming months, the potential contagion effect from FTX’s collapse could send ripples across the industry for months. Additionally, rumors surrounding FTX’s possible misappropriation of customer funds may cause lasting reputational damage to an industry that’s been met with skepticism among mainstream onlookers and regulators alike. Even if the macroeconomic situation improves, trust and confidence in crypto have hit new lows thanks to the FTX crisis. 

Disclosure: At the time of writing this piece, the author owned ETH and several other crypto assets.