Inflation Concerns: People are worried that inflation (the rising cost of goods and services) might go up in the coming months. This could lead to changes in how people expect interest rates to change, which might cause problems for risky investments like bitcoin.
Upcoming Data Release: On a specific date and time, the U.S. Labor Department will share information about inflation in July, called the Consumer Price Index (CPI). Economists expect it to show a small increase, which might indicate that inflation is still going up, but not too fast.
Fed's Role: The Federal Reserve (the U.S. central bank) wants inflation to stay under control. They're watching these numbers too. Right now, they're not too worried because they've already made it a bit harder to borrow money. The interest rate they control is higher than inflation, which helps keep things balanced.
What Traders Might Do: If the upcoming data matches the expectations (not too high), other investors might feel more confident about taking risks, like investing in bitcoin. They think that the central bank might not raise interest rates much more and could even lower them next year.
Misguided Rate Predictions: Traders might be mistaken in thinking that interest rates will be reduced soon. Noelle Acheson, who writes about economics and crypto, explained that forward-looking indicators suggest a situation called "stagflation" is coming. Stagflation is when the economy doesn't grow much but prices still go up, which is bad for investments.
Backward-Looking Data: The Consumer Price Index (CPI) data, which tells us about price changes, looks at the past and doesn't show the whole truth because of certain factors.
Gas and Food Prices: Acheson pointed out that recent increases in gas and food prices, along with the need to add to the U.S. petroleum reserves, are pushing up oil prices. The CPI is affected by changes in oil prices.
High CPI Prediction: The Cleveland Fed's model predicts that the CPI for July could rise by 0.41%, more than what most experts expect (0.2%). This could lead to a higher inflation rate of 0.6% in August, which would be an annualized rate of 7.4%.
Stagflation Impact: Stagflation is bad news for investments, especially stocks. But when compared to traditional investments, like stocks, the negative effects on bitcoin might be less severe due to factors like fewer big investors, the idea of bitcoin as a type of digital gold, and other reasons.
Bond Market and Bitcoin: Analysts at ING warned that recent changes in the bond market, which is where bonds are bought and sold, suggest that the fight against inflation by the Federal Reserve (the central bank) is not done. This could lead to continued higher bond yields, which can affect bitcoin prices because they have an opposite relationship.
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