U.S. wholesale inflation experienced an unexpected decline in August, leading market analysts to speculate on a potential Federal Reserve rate cut at the upcoming meeting. According to the Bureau of Labor Statistics, the Producer Price Index (PPI) for final demand fell by 0.1%, marking the first monthly decrease in four months. This drop follows a revised increase of 0.7% in July and significantly diverges from economists’ expectations for a 0.3% rise. Year-on-year, the PPI saw a rise of 2.6%, substantially lower than the anticipated 3.3%.
The core PPI, which excludes volatile categories such as food and energy, also showed signs of weakening, with an increase of 2.8% year-on-year versus an expected 3.5%. On a month-to-month basis, this measure declined by 0.1%. The decrease in service prices contributed largely to the overall decline; this was the steepest fall since April, while prices for goods saw a slight uptick of 0.1%. These inflation figures reinforce the growing expectation that the Federal Reserve will initiate a rate cut in its upcoming meeting, with futures markets fully pricing in a quarter-point reduction. Some analysts even speculate about a more aggressive move of a 50-basis-point cut.
The labor market is also showing signs of strain, with a government report revealing that the economy created 911,000 fewer jobs in the previous year than initially reported. August’s jobs report highlighted stagnation in employment growth, marking the first job losses in June in over four years. This precarious labor market situation has intensified pressure on the Fed, especially under the scrutiny of President Trump, who has been vocal about needing significant monetary easing. In a recent post, he remarked on the lack of inflation and criticized Fed Chair Jerome Powell, stating that immediate rate cuts are necessary.
The financial markets reacted promptly to the inflation news, with Bitcoin prices surging beyond the $113,000 mark after the data release, increasing from an intraday low of $110,700. Currently trading around $113,913, Bitcoin has experienced a 2.37% rise in the last 24 hours and a 2.4% increase over the past two weeks. Traders are optimistic about further upward movement, with forecasts suggesting a potential advance toward the $150,000 mark if rate cuts proceed.
Bitcoin, which previously reached an all-time high of $124,128 a few months ago, is currently about 8.4% below that peak. Analysts believe that a significant shift in Fed policy could lead to another rally by weakening the dollar and encouraging liquidity in risk assets.
As attention shifts to the upcoming Consumer Price Index (CPI) data scheduled for Thursday, traders and economists are keen to see how the combination of easing inflation pressures and a fragile labor market will influence the Fed’s deliberations. Fed Chair Jerome Powell has indicated that the risks to employment could outweigh concerns about inflation, suggesting that the central bank is poised to act.
The CME FedWatch Tool shows an 88% probability for a quarter-point rate cut at the meeting. In earlier remarks, Powell acknowledged the cooling inflation yet cautioned against assumptions of rapid cuts, emphasizing that policy remains “data-dependent.” The latest payroll data, which posted only 73,000 new jobs and saw earlier numbers revised down, underscores the challenges the Fed faces in balancing inflation control with economic growth.
In reaction to these developments, the markets exhibited caution. U.S. equities saw a reduction in early gains, while crypto assets underwent volatile trades, weighing the potential for monetary easing against the likelihood of slower liquidity improvements. Notably, major financial institutions have adjusted their forecasts in anticipation of imminent easing measures.
As the crypto market braces for possible extended rallies, Bitcoin’s price actions suggest mixed signals. Long-term holders are reportedly increasing their activity despite signs of bearish sentiment in the futures market. Wallets identified as “accumulators,” which consistently buy Bitcoin without selling, have reached a record holding of 266,000 BTC. Analysts highlight a critical juncture for Bitcoin, which seems to be resting on a multi-year ascending trendline.
While bullish sentiments prevail, technical indicators suggest that a decisive hold above key levels is crucial to maintain this bullish structure. Conversely, failure to maintain support could lead to significant declines in price. Traders are currently monitoring volume profiles for potential price movement, ready to respond to shifts in market dynamics as the situation unfolds.
