The latest PCE inflation data from the U.S. is expected on Friday — and Bitcoiners will be keeping a very close eye on the headline figures.
While it’s different from the Consumer Price Index, we’ll get an update about that on April 10, this report provides a valuable insight into how the economy is faring.
For context, the Personal Consumption Expenditures metric helps gauge changes in the prices that consumers are paying for common goods and services — as well as how the public’s behavior is shifting.
As the Bureau of Economic Analysis notes, this index “gets a lot of attention” because of how much weight it’s given by the Federal Reserve, especially as policymakers examine whether it’s time to cut interest rates.
So: what’s expected to happen when the reading for February emerges? Well… not a lot.
January’s data had shown a year-on-year rise of 2.5%, which remains well above the Fed’s target of 2%. That, in turn, was a modest improvement on December, where an annual gain of 2.6% was recorded.
Analysts are forecasting that February’s PCE will remain unchanged at 2.5% — fueling the narrative that inflation is proving stubborn, and rates are going to stay elevated for some time to come.
PCE over the past year. Image: Trading Economics
But what’s worrying economists in particular is that these figures don’t reflect the impact of Donald Trump’s tariffs. Punishing new import taxes on goods from China are already in force, while widespread hikes targeting products entering the U.S. from both Mexico and Canada have been postponed twice.
Further tariffs are planned on aluminum and steel, while a new 25% tariff on imported cars is the latest measure to be proposed by the White House.
All of these policies would leave retailers with little choice but to up their prices — and that will feed through to consumers at the till. When it does, inflation will begin to spike up again, making it harder for the Federal Open Markets Committee to justify interest rate cuts.
The latest figures from the CME FedWatch tool suggest traders believe there’s just an 11.6% chance of the target rate being reduced during the next meeting on 7 May. When it comes to the following meeting on 18 June, 34.5% think they’ll remain unchanged yet again — with a 58.4% likelihood of a cut.
Given how Trump has been repeatedly calling for the Fed to cut rates, any decision to maintain the 4.25% to 4.5% range would likely attract staunch criticism.
Image: CME FedWatch tool
What Does This Mean for Bitcoin?
Unfortunately, it’s highly unlikely that Friday’s PCE data will give Bitcoin a boost — especially based on the current forecasts. A surprise figure to the upside could end up giving the world’s biggest cryptocurrency a little lift.
But the bigger worry for the crypto markets, and Wall Street more widely, remains how this trade war is unfolding.
Jerome Powell recently revealed that he anticipates the inflationary impact of Trump’s tariffs will be “transitory” — in other words, it won’t last for long. But critics point out that the Fed said this when the coronavirus pandemic began too, and that saw the Consumer Price Index overheat to levels not seen since the 1980s.
Alberto Musalem from the St. Louis Fed publicly declared that he disagrees with this analysis, saying:
“The direct price-level effects are expected to have only a brief and limited impact on inflation, but the indirect effects could have a more persistent impact on inflation.”
BitMEX co-founder Arthur Hayes — who has admitted that many of his predictions end up falling well off the mark — believes that Bitcoin’s next move is more likely to see a surge back to $110,000 rather than a slump to $76,500. The trader added that, if BTC once again tests its previous all-time high, “we ain’t looking back until $250,000.”
Unfortunately, this may be an overly optimistic take. Bitcoin’s performance is closely tied to the stock market. And right now, Wall Street is on tenterhooks because Trump’s presidency is proving to be volatile and incredibly unpredictable. This lack of certainty is suppressing the S&P 500, Dow and Nasdaq 100.
In the short term, $90,000 is proving to be a tough nut to crack for Bitcoin. And based on where we are now, this is expected to be BTC’s worst March since 2020.
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