The Bureau of Labor Statistics (BLS) released the CPI report on Tuesday, showing that inflation slowed in April. Bitcoin's price reacted modestly as this change affects the Federal Reserve's (Fed) interest rate path.
U.S. CPI data: Bitcoin prices fluctuate amid declining inflation.
The BLS released the Consumer Price Index (CPI) inflation report on Tuesday at 8:30 AM EST. According to the CPI, inflation in the United States rose at an annual rate of 2.3% in April, slightly lower than the rate recorded in March.
Notably, this year-on-year (YoY) increase marks the smallest reading since February 2021. Key takeaways from the April CPI data include:
April CPI inflation DROPPED to 2.3%, lower than the expected 2.4%.
Core CPI inflation is 2.8%, in line with expectations of 2.8%.
This is the third consecutive month of declining headline inflation.
Inflation continues to cool despite the trade war.
Shortly after, Bitcoin prices rose slightly, from $103,590 to $103,721 at the time of writing.
The muted response comes as the overall market momentum is bullish. The latest inflation figures did not change sentiment; they were slightly lower than expected.
CPI data, an important economic indicator measuring inflation, influences the Fed's monetary policy decisions. When CPI data shows rising inflation, the market often predicts interest rates will increase.
However, cooling inflation or easing inflation pressures, as was the case in April, could increase calls for the Fed to cut interest rates soon. Such an action could put pressure on the dollar but boost interest in Bitcoin and cryptocurrencies.
"CPI is one of the Fed's key indicators and this release may show whether tariffs have pushed inflation higher," a user noted on X (Twitter).
According to CPI data, the CME FedWatch tool indicates that the market is betting 88.6% on the likelihood that the Fed will keep rates unchanged at the current level of 4.50% in the meeting on June 18.
Before the CPI data was released, the market saw a 91.8% chance of the Fed keeping rates steady. Thus, this decline indicates optimism about further rate cuts.
CPI data shows the first signs of tariff-related inflation.
In the press conference following the policy meeting, Fed Chair Jerome Powell noted that short-term inflation expectations have increased due to Trump's tariffs. He also stated that it is time for them to wait before adjusting policy.
However, President Donald Trump is applying political pressure on the Fed, urging the agency to cut interest rates.
"The Fed will be MUCH BETTER if it CUTS INTEREST RATES as U.S. Tariffs start to transition (easily!) into the economy. Do the right thing," Trump wrote on Truth Social.
In this context, some speculate that the President may be right to push for rate cuts amid political battles over monetary policy.
"Is POTUS right and is Fed Chair Powell wrong?" Paul Barron quipped in a post.
However, while today's report did not show signs of tariff-related inflation, the general view is that the full impact of new policies on inflation may begin to manifest after a few months.
The Fed's stance is that the central bank wants to see the potential impact of tariffs reflected in economic data before allowing them to shape the monetary policy path.
"The risks of higher unemployment and higher inflation have increased, but they have not yet materialized. They really have not materialized. They are not actually absent from the data... Our policy is in a very good place and the right thing to do is to wait for further clarity," Powell stated.
Therefore, even weakness in next month's payroll could be temporary if tariff negotiations continue to progress positively.
