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Breaking News: Coinbase Confirms DOJ Investigation Following Major Security Incident

Bitcoin Price Drops As Core PCE Comes In Hot, These Are The Implications

Jake Simmons
Jake Simmons
1 year ago
3 mins read
Bitcoin BTC

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For the Bitcoin and crypto markets, today’s release of the Core Personal Consumption Expenditure (PCE) index in the United States has been the most important event of the week. The starting point was simple: if the numbers released by the Bureau of Economic Analysis (BEA) were better than expected, Bitcoin and other risk assets could see a renewed rally.

At the same time, however, there was a risk that the numbers – like the Consumer Price Index (CPI) for January – would be worse than estimates suggested. In this case, analysts agree that it will support the U.S. Federal Reserve (Fed) in its interest rate policy, aiming for higher and longer.

Bitcoin Price Drops As Core PCE Comes In Hot

The most important thing about the PCE inflation data is that the releases lag the CPI releases by two to three weeks and the PCE tracks the CPI very closely. For this reason, the PCE data usually barely moves the market, even though it is the Fed’s preferred inflation measure.

This time, however, the market was watching closely after the January CPI delivered a bad surprise. Prior to the release, estimates suggested that core PCE inflation would rise 0.4% month-over-month, slightly faster than the 0.3% rise reported for December 2022.

The annualized core PCE price index for January was forecast at 4.3%, slightly lower than the 4.4% reported in December 2022.

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The figures just reported by the Bureau of Economic Analysis are worse than expected – a bad surprise (again). Core PCE comes in hot +0.6% month-over-month, versus +0.4% expected. The year-over-year figure comes in at +4.7%, expected was +4.3%. The other data, which were published as well, looks just as bad.

US Personal Income +0.6% In Jan; Consensus +1.2%

US Personal Spending +1.8% In Jan; Consensus +1.4%

Jan PCE Core Price Index +0.6% Rate On Mo; +4.7% On Yr

Jan PCE Price Index +0.6% Rate On Mo; +5.4% On Yr

Dec Personal Income Revised To +0.3% From +0.2%

— *Walter Bloomberg (@DeItaone) February 24, 2023

Implications For The Next Fed Meeting

Today’s PCE release is likely to have a significant impact on the Fed’s next FOMC meeting, which will be held on March 21-22, 2023. Fed Chairman Jerome Powell didn’t get tired of emphasizing during recent FOMC press conferences that the interest rate decisions are dependent on data.

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The Core PCE is the Fed’s preferred metric because the PCE is more flexible than the CPI as it adjusts to changes in consumer spending habits. The CPI, on the other hand, is less flexible and does not take into account changes in consumption patterns.

Another advantage of the PCE is that while the CPI uses a fixed basket of goods method (the weighting is updated annually since 2023), the PCE is using a chain index method, which allows changes in consumption habits to be taken into account in a more timely manner.

The fact that the PCE came in worse than expected is likely to strengthen the faction within the Fed calling for a 50 basis point (bps) rate hike. Cleveland Fed President Loretta Mester said last week that he had seen a “compelling economic case for a 50-basis-point increase, which would have brought the top of the target range to 5%.”

FED'S MESTER: AT THE MOST RECENT MEETING, REPEATS SAW A STRONG CASE FOR 50 BPS.

— FinancialJuice (@financialjuice) February 24, 2023

On the other hand, the Fed could also follow through on its “higher for longer” strategy with at least three 25 bps hikes. With the U.S. labor market still strong, Goldman Sachs expressed that the Fed will raise rates by 25 bps at each of the March, May and June meetings. As NewsBTC reported yesterday, this should also take a rate cut in 2023 off the table.

Bitcoin reacted accordingly and recorded a slight drop. At press time, the BTC price was trading at $23,789. For Bitcoin bulls, the task now is to defend the recent lows and ultimately the crucial support at $23,300.

Bitcoin price
BTC price reacts to PCE data, 1-hour chart | Source: BTCUSD on TradingView.com
Featured image from iStock, Chart from TradingView.com
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Jake Simmons
Jake Simmons

Jake Simmons

Jake Simmons, a dedicated crypto journalist, has been passionate about Bitcoin since 2016 when he first learned about it. Through his extensive work with NewsBTC.com and Bitcoinist.com, Jake has become a trusted voice in the crypto community, guiding newcomers and seasoned enthusiasts alike towards a deeper understanding of this dynamic field.

Read more

His mission is simple yet profound: to demystify Bitcoin and cryptocurrencies and make them accessible to everyone.
With a professional career in the Bitcoin and crypto scene that began right after graduating with a degree in Information Systems in 2017, Jake has immersed himself in the industry. Jake joined the NewsBTC Group in late 2022. His educational background provides him with the technical prowess and analytical skills necessary to dissect complex topics and present them in an understandable format. Whether you are a casual reader curious about Bitcoin or an investor seeking to navigate the latest market trends, Jake’s insights offer valuable perspectives that bridge the gap between complex technology and everyday usage.

Jake is not just a reporter on technological trends; he is a firm believer in the transformative potential of Bitcoin over traditional fiat currencies. To him, the current financial system is on the brink of chaos, propelled by unchecked government actions and flawed Keynesian economic policies. Drawing from the principles of the Austrian school of economics, Jake views Bitcoin not merely as a digital asset but as a crucial step towards rectifying a failing monetary system. His libertarian views reinforce his stance that just as the church was separated from the state, so too should money be freed from governmental control.

For Jake, Bitcoin represents more than just an investment; it's a peaceful revolution. He envisions a future where Bitcoin fosters a sustainable and responsible financial framework for generations to come. His advocacy is not about opposition but about evolution, about laying the groundwork for a system that prioritizes transparency and equity over secrecy and inequality.

As a journalist, Jake’s articles are crafted with the precision of a scholar and the passion of a true believer. He provides not only news but also thoughtful analysis that connects the dots between daily developments and larger economic theories. His work is a beacon for those lost in the technical jargon often associated with crypto discussions, illuminating the practical implications and benefits of these technologies.

In summary, Jake Simmons is not just reporting on a revolution; he wants to be part of it, fully committed to enhancing public understanding and adoption of Bitcoin and cryptocurrencies. His work is more than just a collection of articles; it’s a resource, a guide, and a companion for anyone ready to explore the potential of this digital frontier. Whether you are taking your first steps into crypto or are a veteran looking to stay on top of the latest trends, Jake’s insights provide clarity and foresight in an often unpredictable industry. Join him on this journey to reshape the world of finance, one post at a time.

You can engage with his latest takes on Twitter: @realJakeSimmons.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

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Created by industry experts and meticulously reviewed
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