Why inflation is not over and could that have negative consequences for Bitcoin?

The Federal Reserve is not in control

The number one mission of the Federal Reserve is to keep inflation under control. They are not particularly good at it, but at least they are trying. So one thing they cannot ignore is that inflation in services is definitely not under control.

But the thing is stubborn inflation in services wasn’t part of anyone’s plans. 

The market had been pricing aggressive rate cuts this year. But the more data points we get the less likely that is. So what is this change of plan and how likely is it to affect Bitcoin’s meteoritic rise.

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Why inflation is not over and could that have negative consequences for Bitcoin?

The takeaway

The PCE price index is the yardstick used by the Federal Reserve to measure inflation. And the services components of PCE inflation are not heading in the right direction. The longer it stays like that, the longer the Federal Reserve will postpone cutting rates (and even threaten raising them again).

For now the market is betting on fewer rate cuts, starting in the second half of this year and less deep than previously anticipated.

But as long as this does not impact the financial conditions we don’t see any reason Bitcoin will be affected. 

Bitcoin’s growth is mainly driven by BlackRock and Fidelity directing traditional investors to rotate a small percentage of their portfolio into Bitcoin. That process is not very sensitive to rate changes. So absent a recession the dynamic that’s boosting Bitcoin’s price should remain unchanged.

Services inflation is running hot