FOMC Likely to Keep Rates Unchanged in March After Hot Inflation Report

Wall Street braced for a chilly reality as hotter-than-expected inflation data sent major indexes tumbling on Tuesday. The Labor Department report revealed US consumer prices surged in January, exceeding forecasts and fueled by rising shelter costs. This unexpected heatwave extinguished investors’ hopes for imminent interest rate cuts.

The Dow Jones Industrial Average suffered its biggest one-day percentage drop in nearly 11 months, plummeting 1.4%.

Other key indexes echoed the bearish sentiment, with the S&P 500 and Nasdaq Composite losing 1.4% and 1.8%, respectively.

Following the release of CPI data, the Chicago Mercantile Exchange (CME) saw a dramatic jump in the probability of the Federal Open Market Committee (FOMC) keeping the rates unchanged in March. The odds soared from 53% at the end of January to a staggering 92%, indicating a near-certainty of tighter monetary policy.

Bitcoin Remains Stable Post CPI Data

While most asset classes felt the chill, Bitcoin showed resilience. While Bitcoin briefly dipped below $49,000, it remains significantly above its price point before the data release. Currently trading around $49,500, the cryptocurrency even boasts a 15% gain in the past week.

This dichotomy highlights the unique risk-reward profile of Bitcoin compared to traditional assets. While it may not be entirely immune to broader market forces, its volatility can sometimes act as a buffer against unexpected events.

However, for the broader market, the future remains uncertain. The CME data also revealed a significant drop in bets for a rate cut by FOMC in May. Prior to the inflation report, around 58% of traders anticipated a reduction, but that number has dwindled to a mere 36.1%. The focus now shifts towards June, where expectations still hold for a potential cut, though with less certainty.