CPI , Fed rates And Btc

Today was a significant and eventful day. I don't remember if there was recently a day when both the CPI and the Fed interest rate decision were announced on the same day. As you can imagine, the markets were in full-on volatility, especially crypto.

Yesterday, we were dumping like crazy, but today, after the initial announcement of the CPI, which was better than expected, we recovered. Of course, BTC broke $70,000 again, and alts followed. From what I can tell, the best performing sector was once again the AI sector.

Why did this happen again?

We are at a point in the broader financial environment where everyone wants the rates to be cut down and for cheaper money to start flowing into the markets again. Despite the good job market in the US, everyone knows that sooner or later things will break. The Treasury Department is trying everything in their power to push the recession back until after the election because if the US economy enters a recession now, Biden's candidacy is officially over. Of course, the administration believed that the initial plan Powell and the Fed had to cut rates three times in 2024 would still be valid, but the two previous CPI prints made it clear that this won't happen. We can now expect one cut at the end of the year, maybe after the elections. I believe that after so many times that the Fed did what we all expected, we should have learned by now.

Now, as I said, everyone is tired of the expensive money. People want to get cheap loans and throw them into risk assets to try to get rich. So what happens when that desperation finds the right news? It explodes, just like what happened today. The markets heard that the CPI was better than expected and tried to price in a rate cut the same day. This was just ridiculous. Why, after so many hints and after all predictions had almost a 100% probability that the rates would remain the same and the plan would be one cut this year (if any), did the markets still pump? People will probably get trapped once again in higher prices. Now, I am not saying that we won’t go higher, but at this point, the catalyst won’t be the Fed unless we see a cut in the next meeting because something bad is imminent and they will try to correct it.

So, lower CPI is good news, more unemployment is good news because this will drag the CPI down. If the CPI goes down and stays down, then the rates will be cut. Until then, the only thing we can expect is more consolidation and organic price action. The more organic, the better.

Posted Using InLeo Alpha