Is the Fed’s Rate Cut Plan Still Viable as US PPI Slows to 1.7%?

According to data from the United States Bureau of Labor Statistics published on Thursday, the US PPI inflation rose by 0.2% in August. This figure was in line with the Dow Jones consensus estimate that was hinted at before the release of the data. The increase in this crucial inflation indicator comes at a time when there is growing speculation about a potential rate cut by the Federal Reserve.

The US PPI report revealed that, excluding food and energy costs, the index increased by 0.3%, slightly above the projected 0.2% estimate. Even after trade services were factored out, the core increase remained consistent. Over the past year, the headline US PPI showed a 1.7% rise, while the annual rate, excluding food, energy, and trade, stood at 3.3%. Service prices played a significant role in driving up the PPI, with a notable 0.4% monthly increase, led by services such as trade, transportation, and warehousing. The increase in guestroom rental costs by 4.8% also made a substantial contribution to the index.

Chris Larkin, managing director of trading and investing at E-Trade with Morgan Stanley, highlighted how the PPI data aligns with previous US CPI inflation readings and jobless claims, setting the stage for the Fed to initiate a cycle of rate cuts. The markets are anticipating an initial 0.25% cut, with discussions evolving about the extent and pace of future rate reductions.

In another development, Citi analysts predicted a significant 1.25% Fed rate cut in 2024 following cooling US CPI inflation data. They cited stable core PCE inflation and a focus on labor market conditions as key factors. The expectation of lower inflation and reduced borrowing costs potentially boosting the US economy could lead to a surge in prices for risk-on assets like Bitcoin. Amid concerns about a looming crisis in the crypto and stock markets, the clarity on interest rates in the near future could provide investors with much-needed confidence, which could contribute to market stability.

At present, the price of Bitcoin stands at $57,780.16, marking a 3.08% increase in the last 24 hours. Despite this slight recovery, Bitcoin’s weekly chart shows a clear downward trend characterized by lower highs and lower lows.