The CPI data is on the table and even though it is not what the majority of market participants expected, the markets are not quick to react to this news. What to make of the numbers and what to expect from the FED in the coming month?

CPI is above expectations

The CPI was higher than expected and rose to 6.4% within the last two months. The consensus was around 6.2% and some European stocks reacted heavily to the news. The decline of inflation is slower than expected and it seems that this time the housing costs were a driving factor.

Crypto on the other hand did not react immediately bearish to the news. A sell-off had already happened in the face of the current events involving Paxos, Binance, the SEC, and the NYDFS. It seems that at the time of writing, the crypto market is not as driven by the CPI release as it was during the last couple of months.

This is neither a good nor a bad sign, it just means that the market appears to be busy pricing in different developments.

Are we out of the woods yet?

In terms of inflation, the answer is no. Jerome Powell was busy managing everybody’s expectations during the last few speeches that he gave on different occasions. The FED does not believe that the fight is over and the data supports that claim.

It remains to be seen if the FED is going to opt for bigger rate hikes again or if we are in for a couple of 25 bps steps until summer. While the market did not react with heavy volatility, the US CPI release and the FED rate hikes might have an impact but might as well not dominate the year 2023 as they did in 2022.

With crypto facing market intrinsic problems such as the ongoing feud about BUSD issued by Paxos, we might enter a phase where other events become more important. A harsh regulatory crackdown in the US would not be fruitful for the broader crypto economy. While countries like Dubai, France, and the UK are planning to become crypto hubs, the US tightening its policies in the face of the aftermath of the FTX crisis.