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Cryptocurrency prices rose on Wednesday after a widely-watched inflation gauge in the U.S. suggested the Federal Reserve’s fight against soaring prices is making progress.
The Consumer Price Index rose 4.9% in the 12 months through April, the Bureau of Labor Statistics (BLS) said Wednesday, coming in slightly below economists' estimates of 5%.
On a month-to-month basis, the index, which tracks price movements across a broad range of goods and services, rose 0.4% in April compared to a 0.1% bump in March and a 0.4% increase in February.
Bitcoin was up 1.4% over the past day, chipping away at weekly losses of 1.8% at around $27,900, according to CoinGecko. Ethereum was also in the green, notching a 1.6% daily increase and reversing a weekly downtrend at $1,870. Meanwhile, the global crypto market capitalization was sitting at $1.2 trillion—up 0.8% from the previous day.
The index’s increase in April was largely fueled by a jump in housing prices, which grew 0.4% month-to-month, the BLS said. But the measure represented a notable decline compared to a monthly increase of 0.6% in March and 0.8% in February.
The report indicated that core inflation, which strips out volatile food and energy costs, rose 5.5% in the 12 months through April, edging down from 5.6% in March.
For the most part, inflation has steadily cooled over the past several months, down significantly from a sweltering 9.1% clip last June. Still, the latest report showed annual inflation remains far above the Fed’s target of 2%. And the U.S. central bank has jacked interest rates aggressively in response to rising prices. It’s lifted interest rates to their highest levels since 2007, delivering its 10th consecutive rate hike last week.
Higher interest rates cool down the economy because of their ripple effect, impacting costs associated with credit cards and mortgages. They also weigh on stocks and other “risk” assets, such as crypto, making yields on cash reserves and U.S. Treasury Bills comparatively more attractive.
The Fed risks tipping the U.S. economy into a recession if it raises rates too quickly. And signs of stress emerged in the financial system when several banks collapsed in March. The tumult continued when First Republic Bank failed last week. Now a potential debt ceiling crisis looms.
When the Fed decided to raise interest rates last week, Chair Jerome Powell indicated there could be a potential pause. But he said the central bank would wait and see how the economy performed before making a decision at the Fed’s next meeting in June.