Inflation in the U.S. saw a decrease in March, sparking hopes that the Federal Reserve may take a more accommodating stance in its future meetings, which has positively impacted cryptocurrency prices.
Recent figures from the Bureau of Labor Statistics indicated that the headline Consumer Price Index slipped from 0.2% in February to -0.1% in March. On a yearly basis, inflation fell from 2.8% to 2.4%, making it likely to hit the Fed’s target of 2.0%.
The core CPI, an important measure that omits the fluctuating food and energy prices, also decreased from 0.2% to 0.1% month-over-month, bringing the annual core rate down to 2.8%. This is notable as it marks the first instance in years where the core CPI has dipped below 3%.
This reduction in inflation occurred even with the introduction of new tariffs on imports. The former President elevated tariffs on goods from Canada and Mexico to 25%, affecting the USMCA agreement he had negotiated earlier. Tariffs on Chinese imports were also increased by 20%.
Moreover, new tariffs on imported steel and aluminum used in manufacturing and construction were enacted.
The latest inflation figures could therefore intensify the Federal Reserve’s pressure to recommence interest rate cuts. The downward trend in inflation is expected to persist, particularly after the former President halted the Liberation Day tariffs on most nations.
Effects on Bitcoin, Ethereum, XRP, and other altcoins
The U.S. inflation data coincided with a rebound for Bitcoin (BTC) and many altcoins, including Ethereum (ETH) and Ripple (XRP), which rose from their weekly lows. Bitcoin reached $82,000, while Ethereum climbed to $1,600 and XRP moved up to $2.
U.S. stock markets also experienced gains following the President’s decision to pause specific tariffs and direct trade representatives to initiate discussions with over 70 countries. However, tariffs on Chinese imports were raised to 125%, which puts over $500 billion worth of goods in jeopardy.
This move contributed to a notable drop in the likelihood of a recession. Goldman Sachs, which had increased its recession predictions earlier in the week, was the first major Wall Street institution to reverse that stance. A poll with over $2.2 million wagered indicated a 50% chance of a recession, down from a high of 66% earlier this week.
Declining inflation, especially in the context of slowing economic growth, could encourage the Federal Reserve to reduce interest rates, creating a favorable environment for Bitcoin and other altcoins. Notably, the crypto market rally that began in early 2023 was partly driven by anticipations that the Federal Reserve would adopt a more lenient monetary policy as inflation trends lower.