US inflation matches forecasts as bitcoin nears $71,000

US CPI holds at 2.4%; bitcoin nears $71,000 as markets price in a Fed pause.

In February, the US consumer-price index was unchanged at 2.4%. The price of the leading cryptocurrency jumped 2.3% to $71,000.

Ether rose 2.8%, approaching $2,100.

The inflation data fully matched analysts’ forecasts.

The core consumer-price index (Core CPI), which excludes food and energy, rose 0.2% month on month. The reading met market expectations, easing from January’s 0.3%.

Year on year, core inflation was 2.5%, exactly in line with the consensus and the previous month.

Views and forecasts

According to experts surveyed by Bloomberg, the February figures do not yet reflect the war in Iran, which has already pushed up fuel and energy prices.

Experts warn about worrying dynamics in another key inflation gauge—the PCE index. Its core components for last month point to at least a 0.4% increase. That deviates from the Fed’s 2% annual target even without the consequences of the Middle East conflict.

“Looking ahead, pricier energy could push the March CPI to around 3%,” said Bloomberg economists Anna Wang and Troy Dury.

Karen Manna, chief investment officer at Federated Hermes, called the current statistics “background noise”. In her view, amid events around Iran, pricing in risk assets continues to be driven by geopolitics rather than economic reports.

Christopher Hodge of Natixis sees the key question as the impact of the energy shock on the economy. He outlined two possible scenarios:

1. Higher energy prices become a “consumption tax”. Rising petrol and heating bills squeeze household budgets for other goods. Demand falls and inflation starts to ease.
2. Costly energy entrenches inflation expectations. People grow accustomed to rising prices and build them into their wage demands. Inflation becomes entrenched.

He believes the Fed will bet on the first outcome. However, he warned that time will tell whether, this time, inflation passes through more quickly from temporary factors (oil prices) to core measures and expectations. If so, the fight against price growth will become much harder.

The Fed’s policy rate

Investors read the data as confirmation of a pause in the Fed’s monetary-easing cycle. The probability of holding the current rate at the March 18 meeting is 99%. The odds of a cut in April fell to 11%.

Wang and Dury expect a moderate rise in unemployment and a slowdown in core inflation in the second half, giving the central bank room to manoeuvre.

“We expect 100 basis points of cuts by year-end,” the economists stressed.

Market reaction

Futures on the main US indices were mixed. The Nasdaq slipped by 0.04%, the Dow Jones by 0.07%. By contrast, the S&P 500 added 0.07%.

The yield on 10-year US Treasuries rose to 4.18%.

Oil continues to rally amid the conflict in the Middle East—in just three weeks crude has surged 80%. Over the past 24 hours WTI rose by 2.2%, and Brent by 2.1%.

Owing to supply disruptions through the Strait of Hormuz, the International Energy Agency announced a release of 400m barrels of oil from strategic reserves. The move should help stabilise the market.

Earlier, Bitfinex analysts called oil prices the main driver of bitcoin’s price.