The latest U.S. inflation report showed a sharper-than-expected decline, spurring positive market reactions and raising expectations for a Fed rate cut.
Inflation Data Sparks Market Optimism
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) increased by just 0.2% in February, below the market expectations of 0.3% and significantly lower than January’s 0.5% rise. Year-over-year inflation stood at 2.8%, slightly below the forecasted 2.9%. Core inflation, excluding volatile food and energy prices, followed a similar trend. Monthly core CPI rose by 0.2%, down from January’s 0.4% and below the 0.3% consensus estimate. The annual core CPI figure came in at 3.1%, undercutting the anticipated 3.3%.
Bitcoin and Stocks React to the Inflation Report
Following the data release, Bitcoin (BTC) saw an immediate 1% jump, climbing to $84,100. The Nasdaq 100 futures also gained 1.5%, reflecting increased confidence in risk assets. However, bond yields, the U.S. dollar, and gold remained relatively unchanged. Markets have been volatile recently, as persistent inflation above the Fed’s 2% target has created uncertainty over the timing and scale of future rate cuts. Over the past month, the S&P 500 has dropped nearly 10%, while Bitcoin has fallen about 30% from its early-year peak of $109,000.
Rate Cut Expectations Surge
The latest inflation figures have strengthened the case for a Fed rate cut. Current market pricing suggests a 40% probability of a rate cut in May, with the likelihood of at least one rate reduction by June rising to 85%. However, all eyes are now on the Producer Price Index (PPI) report set to be released on Thursday. If PPI data confirms a continued slowdown in inflation, expectations for a Fed rate cut could solidify. Conversely, stronger-than-expected PPI figures may prolong market uncertainty and volatility.
With lower inflation figures, market focus has shifted to future Fed decisions and reports like PPI, which could influence the direction of interest rates.
