Cooling US inflation increases chance of rate cut, positive for crypto market

Yesterday we reported that the August inflation numbers were about to be released, and today they are finally out. The US economy appears to be taking a breather, as the consumer price index (CPI) rose 2.5% year-on-year, just below the 2.6% expected.

The better-than-expected figures are being positively received by the markets, mainly due to the drop in energy prices. This fuels hopes that the Federal Reserve (Fed) will soon cut rates, which could be a positive signal for both traditional markets and the crypto market.

Core inflation remains stubborn

Despite the mild headline inflation, core inflation, which excludes volatile prices of energy and food, among other things, remains solid at 3.2%, exactly in line with expectations. This indicator provides a better picture of underlying price developments in the US economy and is crucial for the Fed’s interest rate policy.

Chance of 0.25% rate cut brings positive signal for markets

Expectations are high that the Federal Reserve will cut rates by 0.25% next week. This would signal not only that the U.S. economy is still strong enough to move forward without a recession, but also that the Fed is ready to cut rates to support further growth.

Such a decision could further boost confidence in both the stock and crypto markets, as lower interest rates typically lead to more investment and capital flows into riskier assets such as crypto.

Strong Inflows into US ETFs

The crypto market seemed to be preparing for a positive report. For example, US spot exchange traded funds (ETFs) for Bitcoin (BTC) and Ethereum (ETH) made a remarkable turnaround yesterday. For the first time in weeks, Bitcoin funds saw inflows of over $100 million. Ethereum funds posted their best performance in almost a month.

Data from Farside Investors shows that eleven Bitcoin funds collectively raised $117 million. Fidelity’s FBTC fund was the largest contributor with $63.2 million. Notably, there were no outflows, even from Grayscale’s GBTC fund, which shows confidence in the market.

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