#USPPIComesInBelowExpectations

Another Inflation Surprise Is Boosting Investor Optimism The latest U.S. PPI figure was a second pleasant surprise in as many days, coming in softer than economists predicted. After all, the latest consumer price index report already signaled that inflation was beginning to cool down across the U.S economy.

When consumer prices and producer prices start cooling at the same time, investors begin getting excited about the future direction of interest rates.

The large month-on-month decline in PPI prices also particularly grabbed my attention, thanks in part to the rapid drop in oil prices that contributed to easing production costs in a number of sectors. Businesses have been benefiting from lower costs, and this can filter down into consumer prices at a later date. Traders and investors wasted little time digesting the data: Short-term inflation expectations that another Fed rate hike would take place in July plummeted, while expectations of a rate cut further out in time grew… A general decrease in expectations of tightened monetary policy often boost investor optimism because a more accommodative environment is favorable for both stocks and cryptocurrencies. However, we should also keep in mind what Fed policymakers say about this information.

Earlier this week, Fed Chair Warsh said that he expects more good news on inflation but cautioned against concluding that the fight is already won, which policy makers would expect at least several months of consecutive good data before it would indicate a reversal of policy direction.

That would explain why the market seems to be divided on when rate cuts might happen. For crypto investors, inflation has been the single most important macro factor. As inflation cools, it can contribute to greater market liquidity and confidence, and this data point can be positive for assets perceived to be more risky like Bitcoin and Ether.

Even so, the market still seems heavily reliant on future economic data, and of course, what Fed policy decisions the U.S. Central bank makes. We are seeing optimism, and we might continue to do so, but a single data point is unlikely to guarantee long-term trends.

We personally want to continue monitoring upcoming data on inflation, employment, and consumer spending to see if the disinflationary trend holds true.

We could be in for a much more supportive climate for investors of all types, including the cryptocurrency asset class, if prices continue to fall and activity remains strong. Do you believe the latest PPI report is the precursor to a long term inflation decline, or will it be stubborn going into the late year?

‍#Inflation #GateSquare