US Inflation Rises Again, Could Hawkish Fed Pivot Curb Crypto Bull Market?

Economic data released in the United States on Wednesday has raised red flags as Core PCE inflation has increased to 2.8% for October.

The Personal Consumption Expenditures report reflects the average amount of money consumers spend monthly and is used by central bank policymakers as their primary inflation gauge.

“The Fed’s worst nightmare is officially here,” exclaimed the Kobeissi Letter, which added that this week’s data confirms that all three inflation metrics are back on the rise.

Compounding Inflation

These reports have been indicating a rising cost of living in the US since July, and now all three inflation gauges are increasing as well, it revealed.

“For the first time since February 2022, Core CPI, PCE, and PPI inflation are now rising at the SAME time.”

It added that the clear “elephant in the room” is that inflation has leveled off above the Fed’s 2% target.

The Fed’s worst nightmare is officially here:

Today’s data confirms ALL 3 inflation metrics are back on the rise.

For the first time since February 2022, Core CPI, PCE and PPI inflation are now rising at the SAME time.

Did the Fed spark a new wave of inflation?

(a thread)

— The Kobeissi Letter (@KobeissiLetter) November 27, 2024

Kobeissi added that the Core CPI has been above 3% for 42 consecutive months, the longest streak since the early 1990s, “which effectively means we have compounding inflation.”

President-elect Donald Trump’s proposed tariffs on China, Canada, and Mexico could also increase consumer prices and push inflation back up.

This week, Goldman Sachs economists predicted that tariffs would directly impact Personal Consumption Expenditures.

“Using our rule of thumb that every 1% increase in the effective tariff rate would raise core PCE by 0.1%, we estimate that the proposed tariff increases would boost core PCE prices by 0.9% if implemented,” they wrote.

Impact on Crypto

Increasing inflation means the Federal Reserve could pivot back to a hawkish stance in halting interest rate reductions or even increasing rates again.

After starting rate cuts with a 50 basis point cut for the first time in 2008, the Fed is now worried with chair Jerome Powell, who recently said the central banks were “not in a hurry” to cut rates.

High interest rates are usually bad news for risk-on assets such as crypto since lower-risk cash-related investments become more attractive. Additionally, higher rates mean lower liquidity and excess money for investing as there is less borrowing.

Nevertheless, crypto markets continued to march higher this week, with total capitalization hitting $3.5 trillion again, primarily driven by Ethereum and altcoins.

The bullish momentum from a new pro-crypto administration and major institutional acceptance and investment could be enough to overcome a hawkish pivot by the US central bank.