Last Friday, the Personal Consumption Expenditures (PCE) Index, the preferred inflation gauge of the U.S. central bank, was released. It came in slightly below expectations, suggesting inflation is cooling down. That’s usually good news for Bitcoin, as it raises the chances of multiple interest rate cuts. However, a recession could change the game.
Why Is Inflation Falling?
It’s not just about the numbers; we need to understand why inflation is dropping. Often, lower inflation signals a cooling economy. Recently, the U.S. economy has been slowing down quickly. Many are now worried about the potential for a recession.
If a recession hits, it could be bad news for the ongoing bull market. Bull markets and recessions don’t mix well. Still, this recent inflation report suggests that rate cuts are on the way, which is a positive sign for Bitcoin.
Rate Cuts on the Horizon
Right now, the market is betting on a 0.25% rate cut on September 18, with a 69.5% chance. There’s also a 30% chance of a 0.50% cut. A bigger rate cut would require a poor jobs report next week, where unemployment rises more than expected. But it’s uncertain how that might impact Bitcoin prices.
No Recession… Yet
Despite recession fears, recent data shows the U.S. economy is still growing. Economic growth for Q2 2024 came in at 3.0%, beating expectations. Personal consumption also rose by 2.9%, higher than the forecasted 2.2%. So, those predicting a recession might be looking at different data points.
Of course, not everything looks perfect. The U.S. housing market, for instance, appears weak, mainly due to high interest rates. These rates are slowing down transactions, which might be contributing to concerns.
Low Recession Risk for Now
According to Bloomberg, the chance of a recession currently sits at 30%. So, for now, it seems we’re steering clear of a recession, which bodes well for Bitcoin. But remember, rate cuts alone won’t drive Bitcoin’s price up. There still needs to be demand from buyers to push prices higher.
A Crucial Week Ahead for Bitcoin
Next week could be critical for Bitcoin. A lot of labor market data will be released, which could sway market sentiment. Friday, in particular, will be key as we get the latest unemployment figures. The last jobs report on August 5 led to a sharp market reaction.