The stock and crypto markets remained on edge today, February 13, as participants reacted to the latest US consumer inflation report, which continued moving downwards in January.
Summary
- The stock and crypto markets retreated after the US published the latest US consumer inflation report.
- Data by the Bureau of Labor Statistics showed that the headline Consumer Price Index fell to 2.4%.
- Core inflation, which excludes the volatile food and energy prices, fell to 2.5%.
US stock indices retreated, with the futures tied to the Dow Jones. Nasdaq 100, and S&P 500 falling by over 35 basis points, continuing a trend that has continued on Thursday.
Similarly, crypto prices like Bitcoin (BTC) dropped to $66,000, while top altcoins like LayerZero (ZRO), Canton, Internet Computer, Uniswap, and Kaspa dropped by over 5% in the last 24 hours. The market capitalization of all tokens dropped to $2.29 trillion.
US consumer inflation retreated in January
A report released by the Bureau of Labor Statistics showed that the headline Consumer Price Index retreated from 2.7% in December to 2.4% in January, the lowest level in months. It retreated from 0.3% in December to 0.2% on a MoM basis.
The report showed that the core inflation, which excludes the volatile food and energy prices, dropped to 2.5% from the previous 2.6%. These numbers mean that US inflation has not surged as during President Donald Trump’s tariffs as most economists were expecting.
The report came a few hours after the Financial Times reported that Trump’s administration was considering tweaking his massive steel and aluminum tariffs, a move that will lead to lower prices in the long term
The data came two days after the BLS released strong non-farm payrolls data, which showed that the economy created 130k jobs in January, while the unemployment rate slipped to 4.3%.
Still, it is unclear whether the Federal Reserve will cut interest rates more times this year, even as inflation retreats. A Polymarket poll has the odds of no cuts in March at 93%. Another poll estimates that there will be just two cuts this year.
Stocks and crypto markets do well in periods of low interest rate
In theory, the stock and crypto markets do well when the Fed is cutting interest rates. A good example of this happened during the COVID-19 pandemic when these assets jumped as the Fed slashed rates to zero.
The assets then plunged in 2022, with Bitcoin moving below $16,000, as the Fed hiked interest rates to combat the elevated inflation.
However, the current Federal Reserve cycle has happened amid a divergence in the two assets. The stock market has soared to a record high, while Bitcoin and most altcoins are stuck in a bear market.
One reason for this is that the market has had some major moving parts in the past few months. The stock market has been driven be the ongoing AI boom, while the crypto market crash has happened because of the elevated risks, including on Iran.