#USPPIComesInBelowExpectations

Cooling U.S. Inflation Is Giving Markets Fresh Optimism The Producer Price Index (PPI) was a surprise for most traders this morning, with data coming in lighter than many were expecting and adding to earlier’s CPI softness. Given the fact that both consumer and producer inflation numbers appear to be cooling, it should be little surprise to most investors that confidence in the future path of rates appears to be returning to markets.

My take-away, from this data print and recent, more broadly is how fast the market sentiment can pivot.

Just weeks ago, traders were positioning for the prospect of increasingly more aggressive Fed rate hikes, now the odds of another near-term hike have fallen dramatically, and that has been boosting sentiment across risk assets including cryptocurrencies. A big reason why the PPI came in much lower was due to sharp drops in energy prices, particularly gasoline. While lower energy prices are helpful and a big relief on overall inflationary pressures, I do not believe that such decreases are alone enough to put an end to this inflation, and as noted by Fed Chair Warsh last month, "it's far too early to declare victory." Central banks often need a pattern to emerge over the course of several months before it shifts the broader narrative around long-term monetary policy, but today's PPI should at least encourage the Fed to remain a little more open to the idea of eventually putting a halt to its rate hikes.

Why This Matters To Crypto For investors in cryptocurrencies, the policy outlook of the Federal Reserve matters significantly as policy is one of the largest drivers of liquidity.

As interest rate pressure subsides and financial conditions ease, that could lead to more appetite for investors to take on more risk, which has the potential to provide a boost to cryptocurrencies. As with many asset classes though, lower interest rates are not a prerequisite for higher prices of risk assets. Looking Forward My view is cautiously optimistic.

Economic data ebbs and flows, and market price action is known for its emotional reactions to individual data prints, so I am waiting to see how this downward trend on inflation continues over the next few months before drawing any definitive conclusions. Should this cooling trend continue in July and August then sentiment on both financial markets and cryptocurrencies will likely continue to improve. Will this give Fed policymakers a reason to adjust their outlook for the rest of 2022?

I’ll be keeping a close eye on all the incoming data!

How about you?

What are your thoughts on today’sPPIprint – are we nearing the peak, or do you think the Fed will remain hawkish for the rest of the year?

‍#Inflation #GateSquare