Recent news that inflation is in line with the Fed’s target has left markets cautiously optimistic, sending Bitcoin back above $100,000

As much as we’d all like the Bitcoin market to be uncorrelated, the reality is that it’s still people buying (and selling) the coin. Given BTC’s volatility, macroeconomic conditions can play a significant role in investor confidence and the cryptocurrency’s value.

Inflation data is especially important because it is an indicator of overall economic health and sets interest rates for governments and reserve banks.

With the US dollar acting as the world’s reserve currency, inflation and US-linked interest rates have a particular impact on most assets, including Bitcoin.

The US central bank is currently forecasting an inflation rate of 2%, well below its post-Covid peak of 9.1%.

According to the latest report, US inflation reached 2.7% in November. While that’s certainly a slight increase from September’s 2.4%, the overall trend is in line with the Federal Reserve’s models.

Inflation itself is important, but investors are particularly interested in how it will impact the Federal Reserve’s December meeting. Sentiment has been generally positive, with economists believing that inflation is stable enough for the Fed to cut by 0.25 to 0.5 bps.

Cutting interest rates is usually bullish for markets, as it means money is “cheaper” and encourages more aggressive borrowing. In turn, this can lead to riskier investment behavior – something that has benefited crypto in the past.

Not everyone is so optimistic about the numbers, however, with some believing that inflation has proven a bit more resilient than most would like.

While the Fed has hinted that there will be four rate cuts in 2025, some analysts believe the pace may need to be slowed if inflation continues to rise.

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