US Consumer Price Index (CPI) data showed inflation had eased to 2.5% in August, lower than market expectations. This expected inflation is one of the important indicators used by the US Federal Reserve in determining the policy rate plan. However, with the numbers cooling, the central bank may take a dovish approach, which in turn could trigger a rally in the stock and crypto markets.
The latest data from the Labor Department showed the long-awaited US CPI inflation remained at 0.2% in August, the same as the previous month and in line with market expectations. On an annual (YoY) basis, inflation eased to 2.5%, lower than market expectations and from 2.9% in July. This also marks the lowest level since February 2021.
At the same time, the US Core CPI inflation rate, which excludes food and energy prices, rose by 0.3%, after a 0.2% jump in July. On an annual basis, Core CPI data showed it remained unchanged from July at 3.2%.
The declining data appears to have boosted market sentiment, further strengthening expectations of a possible interest rate cut by the US Federal Reserve this month. After the report from the Labor Department, the likelihood of a Fed interest rate cut of 25 bps jumped to 85% from 71% for the September meeting, based on the CME FedWatch Tool report. In addition, the market now expects a decline of 100 bps this year.
This declining figure has sparked speculation about its impact on the financial market as a whole. Lower interest rates usually boost market sentiment, which in turn increases investors' risk appetite.
On that basis, many market experts expect a market recovery after this positive data, especially amid concerns about gloomy crypto market trading in September. Additionally, Pimco economist Tiffany Wilding said that the latest data dismissed concerns about a 50 bps interest rate cut in September.
However, even with the declining US CPI inflation rate, financial markets are trading in the red zone today. The BTC price is close to $56,352.63, while the ETH price is hovering around the 2,300 level. However, despite this, a recent Bitcoin price forecast shows a potential upside for this major crypto to $71,670.63 in September.