Fresh US economic data has made the case for lower interest rates harder to argue, a development that matters for crypto traders who typically favour looser monetary policy. The Bureau of Eco
Fresh US economic data has made the case for lower interest rates harder to argue, a development that matters for crypto traders who typically favour looser monetary policy.
The Bureau of Economic Analysis reported on Thursday that the US economy grew at a 3.4% annualized pace in the third quarter, ahead of the 3.2% economists expected. That compares with 2.2% growth in the second quarter.
In a separate release, the personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, rose 3.6% from a year earlier in September. That matched forecasts and was up from 3.4% in August. On a monthly basis, prices rose 0.5%. Core PCE, which strips out food and energy, rose 3.1% year on year, up from 3.0% previously.
Strong growth combined with rising inflation leaves the Fed with little reason to ease policy. The central bank is already leaning the other way. On October 28 it held the federal funds rate at 3.75% to 4.00% in a 10-2 vote, with both dissenters favouring an immediate 25-basis-point hike. The policy statement kept its language that inflation "remains elevated" and upgraded its view of economic activity from solid to strong.
Markets are pricing in further tightening rather than cuts. According to the CME FedWatch Tool, the probability of a Fed hike at the December 9 meeting rose to 79.6% on Thursday, from 78.33% on Tuesday.
Crypto tends to benefit when investors expect easier policy, because lower rates and a weaker dollar generally support appetite for risk assets. The reverse also holds. Analysts at Coin Gabbar note that when investors expect higher rates for longer, Treasury yields and the US dollar often rise, which can weigh on speculative assets such as $BTC and $ETH.
Bitcoin has already been under pressure. FXStreet reported that BTC slipped below $80,000 on Thursday after the Fed held rates with a hawkish tone. TradingKey added that the 10-year Treasury yield surpassing 5% has raised the opportunity cost of holding risk assets.
Not all analysts expect the data to move markets sharply. InvestingLive argued that the releases were unlikely to shift Fed expectations significantly, as PCE can be estimated fairly accurately from earlier CPI and PPI data. The headline numbers largely matched forecasts, apart from the GDP beat.
The next steps now rest with the Fed. With inflation above its 2% target and growth running ahead of forecasts, traders will be watching for any signal on whether the December meeting brings a hold or another hike.
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