Higher Than Expected PCE Numbers Push Bitcoin Down

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Month-on-month core Per­son­al Con­sump­tion Expen­di­ture rose 0.6% in Jan. 2023, high­er than ana­lysts’ 0.4% pre­dic­tion and December’s 0.3% rise.

The lat­est spend­ing data affirmed ear­li­er fears of a boom­ing job mar­ket as per­son­al income rose 0.6% after a 0.2% gain in Decem­ber 2022, while per­son­al spend­ing increased 1.8%.

Stocks and Bitcoin Fall as Both Core and Headline PCE Rises

Head­line PCE, which includes food and ener­gy, rose 5% year-on-year, up slight­ly from 4.9% in Decem­ber 2022. 

The U.S. Bureau of Eco­nom­ic Analy­sis reports per­son­al income, per­son­al spend­ing, and PCE Price Index month­ly in its Per­son­al Income and Out­lays Report.

U.S. Monthly PCE percentage
U.S. Month­ly PCE | Source: Ycharts

After the news, stock mar­kets took a hit, with the Dow Jones falling 300 points and more pain expect­ed for growth stocks. Nas­daq 100 futures fell 1.7%, while the S&P 500 Futures was down 1.2%. Mar­ket strate­gist Sven Hen­rich not­ed that PCE num­bers like­ly present stock buy­ing opportunities.

Bit­coin tracked stock mar­kets down­ward, drop­ping 0.6% to $23,751 and falling fur­ther to $23,106 at press time. Ethereum dropped from $1,639 to $1,592 at press time, a decline of over 3.4%. 

BTC/USD Hourly Trading Chart
BTC/USD Hourly Trad­ing Chart | Source: Trad­ingView

Unlike the pop­u­lar Con­sumer Price Index, which mea­sures gran­u­lar price changes for every­day items like cere­al, Per­son­al Con­sump­tion Expen­di­ture cap­tures broad shifts in con­sumer behav­ior based on price; for exam­ple, if con­sumers choose a cheap­er cere­al because the price of their pre­ferred brand has gone up. In the med­ical sec­tor, CPI tracks changes in the price the end user pays, while PCE mea­sures what med­ical insur­ance firms pay out for treatment.

Fed Places More Weight on PCE Than CPI

The Fed­er­al Reserve, respon­si­ble for price sta­bil­i­ty and max­i­mum employ­ment in the U.S., is expect­ed to announce an increase in inter­est rates at its next meet­ing, which starts on March 22, 2023. 

The cen­tral bank has been increas­ing the cost of bor­row­ing rate since March 2022 to tame U.S. infla­tion, which reached decade-high pro­por­tions in the wake of Covid-19 stim­u­lus checks and low-inter­est rates. 

Its Open Mar­kets Com­mit­tee gives greater weight to the PCE than the CPI in deter­min­ing mon­e­tary pol­i­cy changes. Hot PCE num­bers point to the pol­i­cy­mak­ers increas­ing rates at the March meet­ing, though mar­kets and ana­lysts are divid­ed on the size of the rate hikes.

Analysts Agree on Future Increases While Markets Price in 50 Basis Points 

Data from the CME Group indi­cat­ed that futures mar­kets are already pric­ing in a 50-basis point increase after the news, dou­ble the pre­vi­ous gen­er­al mar­ket con­sen­sus of 25 basis points.

Ana­lysts and mar­kets agree that the Fed will like­ly con­tin­ue rais­ing rates at its next three meet­ings. Fed Chair Jerome Pow­ell said ear­li­er this year that the Fed­er­al Reserve is unlike­ly to end rate hikes before the end of the year to reach its infla­tion tar­get of 2%.

“The Fed has much more work to do, and even if they only raise rates a cou­ple more times, it is extreme­ly unlike­ly that they will be cut­ting rates this year—as was con­sen­sus and in mar­ket-based pric­ing as recent­ly as a few weeks ago,” not­ed Chris Zac­carel­li, the Inde­pen­dent Advi­sor Alliance’s Chief Invest­ment Officer.

Cleve­land Fed pres­i­dent Loret­ta Mester con­curred that the Fed “needs to do a lit­tle more” to con­tin­ue push­ing infla­tion down, expect­ing inter­est rates to reach a lit­tle over 5% and stay there.

Min­utes from the last FOMC meet­ing indi­cate that most com­mit­tee mem­bers favored reduc­ing the pace of 25 basis point increases.

For Be[In]Crypto’s lat­est Bit­coin (BTC) analy­sis, click here.

Disclaimer

BeIn­Cryp­to has reached out to com­pa­ny or indi­vid­ual involved in the sto­ry to get an offi­cial state­ment about the recent devel­op­ments, but it has yet to hear back.



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