The inflation figures announced in the US coming in at the expected level also increased the expectation of a 25 basis point reduction in the markets significantly. The 50 basis point reduction expectation rate has fallen to a level not seen in recent times and has dropped to 17% in the CME.
Inflation data for August in the US came in line with expectations. This situation allowed the markets to believe that the economy had cooled sufficiently and that the possibility of a recession was remote. In addition, inflation in the US has fallen for the last 5 months in a row.
The 25 basis point rate increased to 83%
In the CME Fed Watch Tool, where the Fed's interest rate decision expectation is priced in futures markets, the expectation of a 25 basis point cut in the September 18 interest rate meeting has increased to 83%. The expectation of a 50 basis point cut, on the other hand, has fallen to an unprecedented level in recent times, dropping to 17%.
Bitcoin price did not move
It was also noteworthy that there was almost no change in the price of Bitcoin after the inflation data was announced. The largest cryptocurrency is being traded at $56,600 at the time of writing.
Capital Economics analyst Paul Ashworth, in a client note he shared hot on the day, said, “We think the Fed will start its interest rate reduction policy with a 25 basis point cut. Core inflation of 3.2 percent is a high level… This was due to the 5.2 percent increase in housing costs.”
Citi says, “First 25, then 2 x 50”
On the other hand, Citibank also shared an analysis stating that it expects a 25 basis point reduction in September and a 50 basis point reduction in November and December.