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With Price Index Higher Than Expected, Could the Fed Keep Foot on the Gas?

2 mins
Updated by Geraint Price
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In Brief

  • The Producer Price Index (PPI) came in at 0.3%, just higher than expectation of 0.2%.
  • Market reacted poorly to the news, but not excessively, as PPI is not as indicative as CPI.
  • Most are awaiting CPI figures next week, the day before the Fed’s next meeting on Wednesday.
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This past month’s Producer Price Index (PPI) in the U.S. came in slightly higher than expected, edging markets down slightly.

In Nov., PPI rose 0.3% over the previous month and 7.4% over the previous year. The latest figures from the U.S. Bureau of Labor Statistics came in above estimates of 0.2% and 7.2%, respectively. However, the year-on-year figure shrank slightly from Oct.’s 8.1%.

The PPI measures the wholesale prices of goods offered by manufacturers to other businesses. While not as indicative as the Consumer Price Index (CPI), it also serves as a general measure of inflation. In this instance, prices rose slightly more than expected, indicating that efforts to cool off inflation have not been enough.

Market Reacts

The market reacted with some trepidation to the news, fearing it could lead to the continuation of aggressive interest rate hikes. For instance, the Dow Jones Industrial Average fell 98 points, or 0.3%, while the S&P 500 and Nasdaq Composite each traded about 0.2% lower.

Regarding foreign exchange, the dollar strengthened, especially against the euro, which showed a 0.17% loss.

Bitcoin (BTC) Price
Source: BeInCrypto

Crypto markets also reacted poorly to the news, but relatively mildly. Bitcoin (BTC) saw a 1% downside swing upon the announcement’s release at 1:30 pm UTC.

BTC price bottomed at $17,060, but has since recovered somewhat. Ethereum also saw a very similar dip right around the time of the announcement, with a similar recovery in play. Both cryptos and overall market capitalization remain up between 1-2% over the past day.

Ethereum (ETH) Price
Source: BeInCrypto

Waiting for CPI

Overall commentators seem to agree that while the figures are disappointing, they are not especially meaningful. “I’m long ETH after PPI dip,” said Twitter user Skyflop. “I believe the only thing the crypto market really cares about today and through early weekend is stops, not higher PPI.”

Investors are also concerned with another figure rather than PPI, with Nov.’s CPI figures coming out on Tuesday next week. If this indicator also proves higher than expected, some fear how it would affect the Federal Reserve the following day.

During the Fed’s last meeting this year, on Dec. 14, most expect it to raise interest rates by 0.5%. This would be a step-down from the successive 75 basis point-raise the Fed has pursued its last three meetings.

Although some fear a higher than expected CPI, like today’s PPI, could convince the Fed to keep its foot on the gas pedal, others feel confident they will ease up regardless.

Top crypto platforms in the US | February 2024

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Nicholas Pongratz
Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage.
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