No Imminent Crypto Market Upurge Expected Following Release Of June 2022 US CPI Data

At the last meeting in mid-June 2022, the Federal Open Market Committee (FOMC)  announced their biggest interest rate hike in four decades of 75 basis points. Following this interest rate announcement, the crypto markets collapsed in anticipation of future interest rate hikes to curb rising inflation amidst fears of a looming global recession.

At the time of the June 2022 Fed interest rate announcement, Bitcoin was trading at around $23,000 (on June 14, 2022), fell to around $17,700 (on June 18, 2022), a drop of about 30%. During the same period, Ethereum, trading at around $1,248, fell to $897, dropping by about 28%. Other altcoins were generally not spared by the market uncertainty and experienced similar or even larger price drops. 

The Fed advised that another interest rate hike of 50 or 75 basis points was likely in their July meeting. How will the crypto markets react to the next Fed interest rate decision scheduled for July 27, 2022?

If the crypto markets were to take a similar trend as seen in June 2022, following the Fed interest rate announcement, a 30% drop against current trading prices would see Bitcoin and Ethereum trading in the region of $14,000 and $700, respectively. Some analysts, however, believe that the crypto markets may have already priced-in future interest rate hike expectations, and Bitcoin will consolidate around its current trading price (close to $21k at the time of writing) in the short term. However, according to the recent Bloomberg MLIV Pulse survey (conducted 5-8, July 2022), retail investors were more pessimistic about cryptocurrencies than institutional investors. Of the investors in the survey, 60% believed that Bitcoin’s price would first drop to $10,000 before any rally to $30,000.  

According to the US Bureau of Labor Statistics economic news release, the June 2022 CPI data shows that over the last 12 months, inflation rose by 9.1%, with gasoline, shelter, and food being the largest contributors. The energy index is quoted to have risen 7.5% over the month and contributed nearly half of the all items increase. In comparison, May 2022 CPI YoY inflation rose 8.6%, and shelter, gasoline, and food were also the largest contributors. 

The Fed will consider the June 2022 CPI and other data in determining their next interest rate announcement, expected on July 27, 2022. With the June 2022 CPI YoY inflation at 9.1%, the Fed will need to be more aggressive in future interest rate hikes to attain its target average inflation rate of 2% over the longer run.