What does the improvement in PCE inflation data and the rising expectations of interest rate cuts mean for the crypto market

The US third-quarter PCE Price Index annualized quarterly rate final value was released at 2.8%, below market expectations of 3.5%, and unchanged from the previous value. This data has been eagerly anticipated by the crypto market because it directly influences the Federal Reserve’s decision on interest rate cuts. When inflation data exceeds expectations, market expectations for rate cuts tend to heat up, which could be a significant turning point for crypto assets that have been suppressed by prolonged rate hike expectations.

Inflation Data Eases, but the Fed Remains Cautious

The True Meaning of PCE Data

The PCE (Personal Consumption Expenditures) Price Index is the Fed’s preferred inflation indicator, directly anchoring the Fed’s 2% inflation target. The Q3 final value of 2.8%, while above the target, is below the market expectation of 3.5%, indicating inflation pressures are gradually easing. This data sends a positive signal: although the economy remains hot, inflation is no longer out of control.

Related news shows that there are still disagreements within the Fed regarding the pace of inflation decline. Although the PCE data was better than expected, several Fed voting members emphasized in speeches that the pace of inflation reduction remains slower than anticipated, and the timing of rate cuts within the year might be pushed to mid-year. This means that despite the positive data, the Fed will not immediately turn dovish.

The Linkage with Other Economic Data

This PCE data is just one of several key data points released tonight. Also published were:

• US initial jobless claims for the week ending January 17
• The final annualized quarterly rate of US Q3 real GDP
• The final quarterly rate of US Q3 real personal consumption expenditures

Together, these data points form a complete picture for the Fed to assess the economic situation. If GDP and consumption data also remain strong, combined with easing PCE inflation, the Fed may reasonably believe that the economy can sustain growth without excessive stimulus, reinforcing expectations for rate cuts.

Why the Crypto Market Cares About This Data

Rate cut expectations are a major driver for crypto assets

The crypto market is highly sensitive to Fed policy. During rate hike cycles, high interest rates make investors prefer holding dollars and US Treasuries over high-risk crypto assets. Once rate cut expectations rise, the cost of capital decreases, and risk assets tend to regain attention.

According to related news, before the data release, BTC was fluctuating narrowly between 90800-92000 USD, ETH was consolidating around 3200 USD, and the market was in a wait-and-see mode. This is typical of investors waiting for key data to confirm the direction. Better-than-expected PCE data means rising expectations for rate cuts, which is a positive signal the crypto market has been waiting for.

Rotation Opportunities in Risk Assets

When inflation data eases and rate cut expectations rise, market risk appetite improves. Funds are less eager to flee to safe-haven assets (like USD, gold) and instead flow into high-yield, high-volatility assets, including cryptocurrencies. Related news shows that before macro data was released, altcoins performed weakly, reflecting the market’s wait for confirmation signals. Once confirmed, funds may flow back into risk assets.

Market Reactions and Outlook

Short-term Technical Outlook

According to related news, before the data release, BTC faces resistance at 91200-91500, with support at 88000-87200. After better-than-expected PCE data, bulls may attempt to break through the resistance. If the price can effectively break above 92500 on the daily chart middle band, it would indicate a short-term trend reversal, with potential rebound targets around 93000-94000.

Future Focus

Although the PCE data is positive, the market still needs to watch several factors:

1. Performance of other economic data released simultaneously
2. Subsequent statements from Fed officials
3. Policy moves by the Trump administration (related news mentions possible deportation plans that could impact the labor market)
4. Geopolitical factors (Middle East situation, trade tensions)

These factors could alter market expectations for the timing of rate cuts and thus influence crypto asset performance.

Summary

The PCE data below expectations signals a relief in inflation pressures, which is a significant positive for the crypto market that has been under long-term pressure from rate hike expectations. Rising expectations for rate cuts suggest risk assets may experience rotation opportunities. However, the Fed remains cautious, with the timing of rate cuts possibly delayed until mid-year, indicating that the rebound may be promising but not immediate. Investors should closely monitor upcoming economic data and Fed statements to confirm whether this trend can be sustained. In the short term, technical analysis shows that whether BTC can effectively break 92500 will be key, as it will determine if the rebound can continue.