Fed’s Inflation Gauge Heats Up, Rate Cuts on Hold as Bitcoin and Stocks Slide

The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, came in hotter-than-expected in March, showing prices in the U.S. kept on rising.

This reading, the latest sign that inflation is not cooling as quickly as desired, could lead the Fed to maintain higher interest rates for longer, a negative for risk on assets including Bitcoin and equities.

Investors had initially anticipated significant rate cuts from the central bank this year, but persistent inflation has dashed those hopes, leading to wide market corrections. Wall Street now expects cuts, if any, to materialize much later in 2024, potentially in September according to market pricing first reported on by The New York Times..

The hotter-than-expected PCE data is likely to reinforce the Fed’s cautious approach as it deliberates on lowering borrowing costs, with inflation having risen 2.7% year-over-year in March, exceeding the 2.5% figure seen in February and surpassing predictions.

To assess underlying inflation trends, Fed policymakers closely monitor a core measure that excludes volatile food and energy prices, and this core measure remained steady at 2.8% compared to February.

While inflation showed a steady decline in late 2023, progress has stalled recently. This has prompted policymakers to re-evaluate the timing and extent of potential interest rate cuts, with the central bank suggesting it hasn’t yet seen enough progress on inflation to lower interest rates.

Notably, financial instabilities within the bond markets – potentially partly caused by changes in interest rates – are part of a bold Bitcoin price prediction recently made by the CEO of Strike, Jack Mallers, who suggested BTC could surge to the $1 million mark.

According to Mallers, the potential bailout required to stabilize these markets could lead to massive liquidity injections, thus inflating asset prices, including Bitcoin. He emphasized the scarcity of Bitcoin and its fixed supply, which, combined with increased demand amidst financial instability, supports its dramatic appreciation.

Mallers described Bitcoin as the “hardest” money ever created, attributing this to its capped supply — a stark contrast to fiat currencies, which are subject to inflation. This intrinsic hardness makes Bitcoin an attractive store of value, superior even to traditional assets like gold, whose quantity can still be increased.

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