Bitcoin and Ethereum Shake as U.S. August Inflation Slows to 2.5%

Bitcoin prices fell slightly on Wednesday, as a widely reported inflation gauge showed that U.S. consumer prices rose less than expected in the 12 months through August.

The Bureau of Labor Statistics (BLS) reported Wednesday that the consumer price index (CPI) rose 2.5% for the year. Economists had expected the index, which tracks price changes in a basket of goods and services, to rise 2.6% from a year earlier.

Monthly inflation rose 0.2% in August, matching the CPI increase in July. Before that, consumer prices fell 0.1% in June, sending the CPI into negative territory for the first time since 2020.

Immediately after the report was released, the Bitcoin price fell to $56,500, down 1.5% over the past day. Meanwhile, cryptocurrencies such as Ethereum and Solana fell to $2,300 and $130, respectively.

“Overall, this is a very positive report at the moment, which means a 25 basis point cut next week is very likely,” said Tom Dunleavy, partner at MV Global. Decode“I think the short-term impact on Bitcoin is quite weak.”

Dunleavy said the November elections will have a bigger impact on bitcoin prices than monetary policy, as the Fed begins cutting rates as expected. In fact, Bernstein analysts predicted on Monday that there could be a $50,000 difference in bitcoin prices depending on which candidate wins the White House later this year.

New U.S. inflation data will be one of the last big data points officials will consider as the Federal Reserve prepares for its policy meeting next week. The U.S. central bank is widely expected to begin a series of rate cuts on Wednesday, and inflation is showing signs of cooling toward its stated 2% target.

The question driving markets and Bitcoin investors is how quickly the Fed will cut rates as the economy continues to cool. Over the past month, traders have been expecting an initial 0.25% cut on Tuesday, with a 67% chance, according to CME Group’s FedWatch Tool. The new inflation reading has boosted the odds of a 0.25% rate cut to 85%.

Over the past year and a half, the Fed has raised interest rates nearly a dozen times, making borrowing more expensive to do so in an effort to curb decades of high inflation. As inflation concerns have receded, the Fed has focused more on the overall health of the labor market.

The U.S. labor market also affects Bitcoin prices.

For example, the asset price fell to $53,300 after the U.S. jobs report came in weaker than expected last week. Economists had expected employers to add 160,000 jobs in August, but the BLS reported that employers added 142,000 jobs last month, with the job gains for the past two months revised down.

Lower lending rates for riskier assets like Bitcoin would be good news, Bitfinex analysts have previously said. Decode They said it could create a short-term backlash as a “news selling event.” Typically, stock indexes like the S&P 500 fall after rate cuts, they said.

Last week, Federal Reserve Chairman Christopher Waller highlighted the problem with the Fed’s timing of rate cuts: A 25 basis point cut would give officials time to monitor the impact on the economy, but it could also hinder the Fed if the economy becomes too weak.

“I don’t expect this first round of cuts to be the last,” Waller said. “I’m open-minded about the size and pace of the cuts, depending on what the data tells us about how the economy is evolving.”

Edited by Stacy Elliott.