U.S. prices rose modestly in June, suggesting cooling inflation that might allow the Federal Reserve to cut interest rates in September and provide a pathway for higher prices in risk assets, including crypto.
The Commerce Department reported on Friday that consumer spending slowed slightly last month. Easing price pressures and a cooling labor market may bolster Fed officials’ confidence that inflation is trending toward the central bank’s 2% target.
Data showed that the price index of personal consumption expenditures, the Fed’s preferred gauge for inflation, rose 0.1% last month after being unchanged in May. It also rose 2.5% compared to goods and services measured a year ago, data showed.
A cut to interest rates could help lift crypto asset prices as borrowing becomes cheaper for investors, with some analysts forecasting a Bitcoin price as high as $100,000 this year. The asset is trading for $69,200, according to CoinGecko data.
The Fed’s next policy meeting is set for July 30-31. The CME’s FedWatch tool, which considers Fed funds data by derivatives traders, shows a 95.5% chance of no rate cuts this month.
The probability for a 25 basis point cut in September, however, stands above 85%, with a further 14% tipped for an even larger cut.
Earlier this month, former President Donald Trump warned Fed Chairman Jerome Powell against politicizing rates ahead of the U.S. election, which could boost voter confidence over economic stewardship and help the Democrats retain the White House in November.
The former president and Republican nominee previously said the central bank would “maybe” cut interest rates ahead of the election before adding: “It’s something that they know they shouldn’t be doing.” Trump also said he wouldn’t kick Powell out of his job before his term ended, provided he was “doing the right thing.”
In any case, the timing of the U.S. election is placing additional pressure on the central bank to stick to its congressionally mandated objectives of remaining impartial.
Bitcoin, meanwhile, stands to benefit from a change of the guard in Washington, D.C., according to some industry experts.
“Bitcoin will spend the next four months highly correlated to the probability that Trump is elected,” Rich Rosenblum, co-founder of trading firm GSR, tweeted on Saturday.
Trump, speaking to a packed crowd of 20,000 people at the Bitcoin 2024 conference in Nashville on Saturday, said he would build a “strategic Bitcoin stockpile,” vowing to keep 100% of all the Bitcoin the U.S. government currently holds or acquires on home soil.
Despite Trump’s speech having little impact on Bitcoin’s price, the former president’s crypto policy promises have made it “impossible” for Vice President Kamala Harris to counter, Rosenblum tweeted.
That’s largely dependent on Harris’ policy being devoid of any language focusing on an overhaul to the Securities and Exchange Commission and government-held Bitcoin, the co-founder said.