Bitcoin price dips lower despite wider market optimism ahead of Fed rate decision

Bitcoin BTC -1.19% saw a second day of decline despite major equities posting an uptick after U.S. data showed November’s inflation reading to be in line with expectations.

The world’s largest digital asset by market capitalization slumped lower, down over 1.3% to trade at $41,283 at 10:40 a.m. ET. That came in contrast to early trading on Wall Street that saw the Dow Jones Industrial Average rise 0.2%, the S&P 500 gain 0.1%, and the Nasdaq Composite increase 0.1%.

CPI rises 3.1% in November, as expected

Tuesday’s inflation reading by the U.S. Bureau of Labor Statistics showed that prices across a broad range of U.S. goods and services edged higher in November but were mostly in line with expectations.

The reading could be encouraging investor anticipation that the U.S. Federal Reserve will hold interest rates steady at its policy meeting on Wednesday.

According to the BLS, the consumer price index increased 0.1% in November and was up 3.1% from a year ago. Excluding volatile food and energy prices, the core CPI increased 0.3% on the month and 4% from a year ago. Both numbers were in line with estimates and little changed from October. However, the figures are still far above the Fed’s 2% inflation target.

Possibility of continued Fed rate pause

According to YouHodler Chief of Markets Ruslan Lienkha, the market is expecting another rate pause at tomorrow’s Federal Open Market Committee. “Such a decision will mean that everything is following Powell’s plan toward a soft landing, but at the same time, the chairman’s rhetoric may adjust market expectations, and may provoke a temporary correction,” Lienkha told The Block.

According to analysts at Bitfinex, the effect of a continued rate pause will not be limited to traditional markets but will extend to the cryptocurrency sector. “Cryptocurrencies have previously experienced positive market movements following decisions by the Fed to keep interest rates steady. This trend is attributable to the perception of lower or steady interest rates leading to increased disposable income for investments, fostering an optimistic investment environment,” Bitfinex analysts told The Block

Inflation is still ‘entrenched’

However, one analyst believes U.S. inflation is becoming “entrenched” and predicts the Federal Reserve will have a battle on its hands in 2024 and may still hike rates one more time.

“With services sector inflation now entrenched, and the labor market continuing to run incredibly hot, we expect to see inflation spike to 3.5% in December, which could lead to another rate hike from the Federal Reserve in 2024,” Truflation Head of Product Oliver Rust said in a note sent to The Block.

The CME FedWatch tool has set the probability of a rate pause at tomorrow’s FOMC meeting at 98.5%.