Bitcoin and Ethereum Prices Drop Amid January Inflation Spike
Bitcoin’s price fell sharply after inflation rose to 3% in January, surpassing expectations of 2.9%. Ethereum and Solana also declined. The Federal Reserve’s decision to maintain interest rates and concerns about inflationary trends continue to impact the cryptocurrency market significantly.
Bitcoin experienced a significant decline following the recent report from the Bureau of Labor Statistics indicating that consumer prices increased by 3% over the course of January. This inflation rate surpassed economist expectations, which had anticipated a 2.9% rise. Notably, the Consumer Price Index (CPI) has shown a worrying trend of rising inflation over the past few months, particularly from a lower annual rate of 2.4% in September of the previous year.
In reaction to the inflation data, Bitcoin’s price plunged to $94,250, reflecting a 2.3% loss within just 15 minutes. Ethereum and Solana also saw declines, with their prices falling to $2,600 and $193, respectively, as reported by CoinGecko. Furthermore, when excluding volatile food and energy prices, core inflation rose to 3.3%, which slightly exceeded projections, indicating persistent inflationary pressures.
Historically, Bitcoin has benefitted from a decrease in the Federal Reserve’s benchmark interest rates, which were lowered from a peak of 4.25%-4.50% last year. However, the Fed recently opted to maintain its current rates, exhibiting cautious policymaking. The decisions made during the Fed’s meetings reflect concerns about the potential impact of trade policies on overall price stability.
Jerome Powell, chair of the Federal Reserve, emphasized during his recent testimony before Congress that it is not within the Fed’s scope to comment on tariff policies, stating, “It’s not the Fed’s job to make or comment on tariff policy. [The Fed’s job] is to try to react to it in a thoughtful, sensible way.” While the Fed remains prepared to respond to changing economic conditions, Powell believes the current economy is stable enough not to rush any rate adjustments.
In less than two weeks prior, the Commerce Department reported an annual increase of 2.6% in the Personal Consumption Expenditures (PCE) price index, which traditionally serves as the Fed’s preferred measure of inflation. Risky assets, including cryptocurrencies and stocks, are generally bolstered by lower interest rates that stimulate economic activities, though such conditions can also exacerbate inflation.
Amidst these developments, market sentiment shifted, with traders grappling with the reduced likelihood of substantial interest rate cuts by the Fed in 2025. On Wednesday, predictions indicated a greater than 50% chance of only one 25-basis-point rate reduction this year, if any at all. The Fed’s next policy meeting is scheduled for mid-March, thus allowing for additional economic data to emerge before any policy adjustments are decided.
In summary, Bitcoin and other cryptocurrencies have experienced notable declines in response to rising inflation figures reported by the Bureau of Labor Statistics, indicating a challenging economic environment. The Federal Reserve’s decision to maintain interest rates has further contributed to market apprehensions about inflation and economic stability, while traders adjust their expectations for future rate cuts.
Original Source: decrypt.co
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