Consumer prices in the United States decreased for the first time in more than 2.5 years, suggesting that inflation is on a persistent downward trend.
The most recent consumer price index (CPI), which monitors prices across a wide range of goods and services, revealed that the cost of living decreased by 0.1% in December, versus an increase of 0.1% in November. According to the Bureau of Labor Statistics, the annual rate of inflation has dropped to 6.5% from 7.1% in the previous month. This marks the sixth consecutive month in which the annual rate of inflation has decreased.
The Federal Reserve
The key question at this point is whether prices can drop all the way back to the Fed’s 2% target.
In an effort to address the cost-of-living crisis, the Fed has been raising interest rates at a rate not seen in decades; in December of 2022, it announced its seventh increase for the year. However, he has made it clear that rates will continue until inflation is brought down to the central bank’s goal rate.
The Fed’s next rate decision will be on February 1st.
Data interpretation simplified
The Consumer Price Index in the United States reached a high of 9.1% in June of last year, but it has since dropped to 6.5%. The decline in prices of new and used automobiles, gasoline, clothing, medical care, food, gas utilities, and fuel oil is the primary factor behind the current low levels of inflation. Since June of last year, the rates of inflation for shelter, transportation, electricity, and food have all increased, but declines in the rates of inflation for the other major components have more than offset these increases.
On the other hand, wage growth in the United States has not kept pace with rising consumer prices, which is the primary reason why the Federal Reserve will raise interest rates for the eighth time at their meeting on February 1st.
Fed Funds Futures contracts are currently pricing in an 87% probability of a rate hike of 25 basis points at the FOMC meeting. As a result, the data is leading people to the conclusion that the CPI print of 6.5% will be sufficient for the Fed to shift to a slower pace of rate hikes.
How did markets react?
Bitcoin (BTC +3.46%) and other cryptocurrencies kept their upward momentum for several hours after the CPI data was made public. The price of Bitcoin reached a new high of $19,030, an increase of 4% in just the past 24 hours. The price of Bitcoin is currently at $18,800 at the time that this article was written.
In recent days, the stock market as well as the value of bitcoin has been on an upward trend. Since the most recent employment report from the United States, the markets have been flowing with optimism that the Federal Reserve may be able to temper its inflation-fighting interest rate hikes.
Final Thoughts
The rate of inflation is currently declining, but it has not yet reached the target set by the Fed. This indicates that prices are still rising at a faster rate than the Fed would like, and the Fed has not yet achieved its goal of achieving 2% inflation. Additionally, the Fed has not yet achieved its goal of achieving full employment. It is essential to keep in mind that achieving and keeping this target is a process that takes place over the course of a long period of time, and it will take some time for the Fed to accomplish this goal. As a result, there is still a significant distance to cover before the Federal Reserve achieves its goal of bringing inflation down to 2%.
Rickie Sanchez is an article writer specializing in cryptocurrency news. Since late 2017, he has been actively investing in cryptocurrencies. He is enthusiastic about everything that has to do with crypto and he hopes that the readers of his articles in the years to come will gain a massive understanding of blockchain technology.
