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US Inflation Rate Surge: Will Fed Stick to Its Aggressive Approach?

The inflation rate in the United States increased by 0.1% in May. This inflation figure represents a 4% increase over the past 12 months, which meets the economic expectations of the Fed. But will it be enough for the Federal Reserve to slow down its aggressive monetary policy?

According to the Consumer Price Index Summary report for May, published by the US Bureau of Labor Statistics, inflation in the US reached its lowest annual level in the past two years.

However, excluding the volatile prices of food and energy, underlying inflation remains high. This could hinder the Fed’s decision to reduce interest rates.

Will the Fed Change Its Aggressive Monetary Policy amid US Inflation Rate Surge?

On Tuesday, the markets reacted positively to the publication of inflation data. However, the reaction has been as volatile as some analysts expected because many investors prefer to wait for the Fed’s announcements regarding interest rates, which will be published at its upcoming meeting scheduled for this Wednesday.

Furthermore, it is important to consider the upward trend in various indicators, including housing prices, used vehicle prices, transportation services, and more. While these indicators experienced relatively modest increases compared to April, their continuous growth should not be overlooked by the Fed.

However, some analysts like Jeffrey Roach, chief economist at LPL Financial, indicated that the “encouraging trend in consumer prices” could allow the Federal Reserve to keep rates unchanged, at least in the short term. He even stated that if a healthy trend continues, it is possible that the Fed will stop raising rates for the rest of the year.

Volatility Takes Hold of the Cryptocurrency Market

The report revealed a divergence among the different components of the index reflecting changes in commodity and service prices, which strongly influence the overall economic situation and the policies of the Federal Reserve.

For now, the cryptocurrency market is reacting with the same volatility it has typically shown in response to the publication of this data. BTC increased by almost 2%, from $25,900 to a peak of $26,433. However, at the time of writing this note, the price has experienced a 2.6% decline that has affected the majority of altcoins, which were experiencing a significant recovery.

ETH, which also saw a 1.6% rise, is experiencing a 2.58% decline from its peak of $1,770 to a low of $1,724. Even XRP, which had achieved a 10% increase thanks to its victory against the SEC, ended up declining along with BTC.

XRP Price drop 10%. Photo: TradingView

Therefore, it is premature to declare victory in the crypto market. The real test will come tomorrow, when the Fed announces whether it will persist with its aggressive policy or finally yield, thereby allowing the markets to recover.

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US Inflation Rate Surge: Will Fed Stick to Its Aggressive Approach?