Why Hot US CPI Tanked Stock Futures and Crypto

The US Consumer Price Index (CPI) rose 3.4% on an annualized basis in December, causing Bitcoin (BTC) to fall slightly. The so-called core CPI, which strips out food and energy costs, came in 0.1% above expectations and was up 3.9% year-on-year.

Core CPI rose 0.3% monthly, on par with estimates, while headline CPI for December came in 0.1% hotter than expected at 0.3%.

Hotter US CPI Won’t Change Fed’s Mind

Economists surveyed by FactSet expected the US CPI to rise 3.2% year-on-year and 0.1% month-on-month in December. Shelter contributed more than 50% to the rise in headline CPI. Higher gasoline and electricity prices caused the CPI to come in slightly higher than expected.

Read more: 7 Ways To Handle Retirement With Increasing Inflation

The US jobs market still appears to be hot, as the US economy added 216,000 new jobs in December, up from 173,000 in November. This suggests that the US Federal Reserve may hold off on cutting interest rates in the first quarter. The central bank is likely to maintain a higher-for-longer policy.

Yung-Yu Ma, the Chief Investment Officer at BMO Wealth Management, said people are pricing in too many rate cuts in 2024. He surmised that the trajectory of the economy is what the Fed will be watching to time its rate cuts.

“I don’t think the Fed is going to meet the market expectations that seem to be priced in now, at five or six rate cuts. As long as the economy stays stable, the market stays relatively stable, I don’t think the Fed is going to be in a rush to cut rates as aggressively as the market is hoping for right…The trajectory is probably the most important factor.” 

Short-term pressures could come from recent attacks in the Red Sea, which have caused container prices to rise. These increases could be passed onto the consumer, fueling short-term inflation.

Crypto Market Reaction to CPI: BTC, ETH Fall

The S&P 500 futures dropped sharply after the news broke. Yields on the ten-year Treasury were flat, while the US dollar index erased an earlier decline. Bitcoin dropped from $47,331 to $46,987 after the news, while Ethereum (ETH) dipped from $2,654 to $2,629.

Read more: Crypto vs. Banking: Which Is a Smarter Choice?

Yesterday, the Bitcoin price hardly budged after the US Securities and Exchange Commission approved 11 Bitcoin exchange-traded funds. The price was down 0.6% to $45,846 shortly after the announcement late on Wednesday.

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