Last week’s inflation report had little impact on the Federal Reserve’s decision to continue cutting rates. Recently, the yield on 10-year U.S. Treasury bonds has increased from 3.6% to 4.1%, driven by quant-driven fund managers shifting from fixed-income investments to equities. As bond prices dropped, yields rose.
Despite efforts by stock-market pessimists to suggest that stocks can’t keep rising, the bigger picture tells a different story. The focus has been on why the central bank can’t cut interest rates. Initially, there were concerns about Japan’s new government tightening policy, but those fears were alleviated. The recent employment gains were not enough to signal a broader employment slowdown.
This week, critics pointed to higher-than-expected consumer price index (CPI) growth in September as a reason to halt rate cuts. However, a closer look at the data reveals a downward trend in long-term inflation. This indicates that the central bank will likely have room to lower interest rates into the next year, supporting the growth of risk assets like cryptocurrencies.
The U.S. Bureau of Labor Statistics reported a CPI growth rate of 2.4% in September, slightly higher than expected but lower than the previous month. The trend shows a slowdown in inflation growth throughout the year, with the possibility of returning to pre-pandemic levels soon.
Analyzing the monthly growth trend over the years, it appears that inflation is moving back towards normal levels. If this trend continues, CPI could be below the Fed’s 2% target by February. The Fed has ample room to lower rates based on the current difference between the effective fed funds rate and annualized CPI growth.
Despite predictions of lower borrowing costs in the future, the Fed has the flexibility to make rate adjustments now without risking inflation. This strategic approach can help maintain economic stability and support the growth of assets like bitcoin and ether.
In conclusion, the data suggests that the Fed has the capacity to navigate interest rate adjustments effectively. By taking a measured approach, the central bank can ensure a stable economic environment and a positive trajectory for risk assets. This strategy is likely to benefit the growth of the crypto market in the coming months.