Bitcoin, Ether Jump After US CPI Report Shows Slower-Than-Expected November Inflation

The U.S. consumer price index (CPI) rose 0.1% in November from the month prior, slowing more than expected from October’s 0.4% pace, in a sign of progress in the Federal Reserve's campaign to bring down soaring inflation.

The report pushed up prices for cryptocurrencies, based on the expectation that less-worrisome consumer-price increases might give the Fed more cover to ease up on interest-rate hikes.

On an annual basis, the CPI rose 7.1%, the U.S. Labor Department reported Tuesday, below the 7.3% projected by economists in a FactSet survey.

Bitcoin (BTC), the largest cryptocurrency by market value, which has been relatively steady so far in December, jumped 1.6% in the minutes after the report was released, to about $17,930; it's up 5.2% over the past 24 hours. Ether (ETH), the native cryptocurrency of the Ethereum blockchain and the second overall, is up 6.9% over 24 hours to $1,335. The CoinDesk Market Index (CMI) rose 3.8%.

Traders have been monitoring the data for signs of whether the Fed’s rate hikes this year are helping to bring down the pace of consumer-price increases, which earlier this year hit a four-decade high. In general, tighter monetary policy puts downward pressure on prices of risky assets, from stocks to cryptocurrencies.

The U.S. central bank's monetary-policy setting group, the Federal Open Market Committee (FOMC), is meeting this week behind closed doors, with a decision scheduled for Wednesday along with fresh projections by officials on the future path of economic indicators.

Core CPI – which excludes food and energy because they tend to be more volatile – rose 0.2% in November, also a slowdown from October, the Labor Department reported.

The weaker-than-expected inflation figure comes a day after the Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations showed that respondents see one-year inflation running at a 5.2% pace.

The November CPI release is the final major economic report of 2022 and the last key input the FOMC will see before as this week's meeting kicks off Tuesday. The two-day session is set to conclude on Wednesday with a statement due out at 2 p.m. ET and a fresh "Summary of Economic Projections" from top Fed officials, known colloquially as the "dot plot."

“Tuesday's CPI release along with Wednesday's FOMC meeting will undoubtedly set the tone for financial markets as we head into next year,” analysts at Deutsche Bank wrote in a note, expecting another 50 basis point (0.5 percentage point) rate hike by the Fed on Wednesday.

Terminal rate will likely be higher in new projections

Fed Chair Jerome Powell has previously said that he and his colleagues project the interest rate to peak – probably sometime next year – at a level that's higher than officials' previous telegraphed 4.9%. According to Deutsche Bank, the rate could reach 5.1% before the Fed pauses its campaign.

“We expect the dot plot to lean hawkish … reinforcing the committee’s view that policy will need to remain restrictive for longer to guide inflation back to target,” the note said.

Analysts at the French bank BNP Paribas see the terminal rate reaching 5.25% by March and holding that level until the end of the year.

“Communications will emphasize the likelihood of holding rates at restrictive levels over a longer time horizon – possibly even challenging current market pricing,” they wrote in a note.

Powell will speak following the FOMC’s rate hike decision, at 2:30 p.m. ET on Wednesday.

UPDATE (Dec. 13, 13:43): Added information about the FOMC meeting Dec. 13-14 and comments from Deutsche Bank and BNP Paribas analysts.