#cpiwatch STRONG CPI DROP: GOOD SIGNAL FOR INTEREST RATES, BUT THE MARKET MUST NOT BE OVERCONFIDENT
This month's US CPI stands at 2.7%, significantly lower than the forecast of 3.1%; Core CPI is 2.6%, also below the expectation of 3.0%. On the surface, this is positive data: inflation is falling quickly and uniformly, indicating that price pressures are being controlled. For the Fed, this opens up more room to cut interest rates in upcoming periods – a factor that always supports the valuation of risk assets like stocks and crypto.
However, the financial market does not only look at the "pretty numbers." The faster-than-expected decline in inflation raises the question: is consumer demand weakening too quickly? If CPI drops due to a significant decline in demand, the Fed may be forced to cut interest rates to "support" growth, rather than in a context of a strong economy. At that point, the risk-on sentiment will not be sustainable.
For crypto, this is conditionally bullish. CPI data supports the medium-term accumulation trend, but is not enough to confirm a strong breakout. Investors need to monitor Nonfarm Payrolls, unemployment rates, and PMI to determine whether the US is heading towards a "soft landing" or starting to slow down noticeably.
The market always anticipates data. The important thing is to read the context, not just the headlines.