Bitcoin, Altcoins Fall Despite US CPI Drop, Fed Rate Cuts to Stun?

Bitcoin and altcoins have been facing strong selling pressure dropping more than 1% soon after the release of the US Consumer Price Index (CPI) for the month of August. The year-over-year surge in the US CPI stood at 2.5%, which is quite on the expected lines, dropping from the previous 2.9%.

Why Bitcoin and Altcoins Falling Despite Cooling US CPI?

Bitcoin and altcoins continue to adopt a wait-and-watch before making any big move as the futures for all three US indices are currently in the negative territory as of press time.

The future for US short-term interest rates has dropped following the CPI report as traders have scaled back the expectations of a jumbo 50 bps Fed rate cut. Market analysts are now predicting that the Fed will begin its rate cut cycle next week with a 25 bps reduction. Additionally, the traders are still expecting 100 basis points in cuts by the end of the year.

With the chance of a 50 bps Fed rate cut dropping further, the expected euphoria in the market is lacking as of now. Some market analysts have also shared fresh concerns about the Federal Reserve’s timing in responding to economic conditions.

Critics have argued that the Fed’s inflation mandate undertakes a reactive approach. It focuses on lagging indicators such as inflation, which causes delays in adjusting interest rates, said an analyst.

Historically, in the last two instances where the Fed lagged behind the 2-year Treasury yield as much as it does today, it initiated rate cuts with a 50 basis point reduction. Despite inflation being at similar or higher levels in those periods, the economy eventually slid into a recession. Even with the Fed implementing aggressive rate cuts in the following months, it didn’t prevent the recession.

As reported by TheCoinRepublic, market analysts are also expecting an Ethereum price crash to $1,200 even after the Fed rate cut.

Fed Rate Cut and Yen Carry Trade Unwinding

Earlier today, the USD/JPY currency pair slipped the lowest in the year 2024 to 140 raising the fears of another Yen carry trade unwinding. The last time this happened on August 5, 2024, it triggered a major sell-off in global equity markets and the crypto market. During last month’s Yen carry trade unwind, the Bitcoin price saw a 15% drop in a single day slipping under $50,000. Speaking on the development, Bitcoin critic Peter Schiff said:

“As expected, the U.S. Dollar just dropped below 142 Yen for the first time in 2024. The next support is around 128, a 20% drop from the June high. This will result in significant pressure to unwind the yen carry trade, which is bearish for long-term Treasuries and risk assets”.

Schiff also predicted the imbalance in Bitcoin supply and demand that could further affect the Bitcoin price moving ahead.

Earlier this week, Morgan Stanley’s Michael Wilson also stated that jumbo rate cuts by the Fed could further blow up the Yen carry trade unwinding. “The yen carry-trade unwind may still be a risk factor behind the scenes. A quick drop in US front-end rates could cause the yen to strengthen further, thus eliciting an adverse reaction in US risk assets,” he wrote.

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