Soaring Inflation Wallops Crypto and Stocks as Investors Gird for Rate Hikes

Consumer prices in the United States rose a scorching 9.1% in June, according to data released by the Bureau of Labor Statistics at 830am ET.

Coming in above the estimate of 8.8%, the elevated numbers make it all but certain that the Federal Reserve will continue to hike interest rates in its bid to tackle inflation. Indeed, the CME’s FedWatch tool indicates an 85% probability of another 0.75% increase at the Fed’s July meeting.

Ether is down 9% in the last seven days and Bitcoin has dropped 4.5%, according to CoinGecko. The cryptocurrencies have been closely tracking stocks for the last few quarters. As investors have reduced their exposure to macroeconomic risk, they have sold off crypto along with equities.

It’s worth noting that the CPI report is a lagging indicator of inflation. Prices of major commodities including oil, copper and corn have corrected sharply since peaking in early June.

S&P GSCI Commodity Index

The Fed will also undoubtedly be keeping a close eye on the U.S. dollar, which has continued to strengthen against other major currencies and is trading at the highest level in two decades. The Euro hit parity with the dollar for the first time since 2002.

A stronger dollar is generally unfavorable for U.S. exports as it makes American goods more expensive for the rest of the world.

Bear Market

Global markets continue to trade in a range since bottoming after the Fed’s last meeting in June. The S&P 500 slipped back into bear market territory yesterday and remains 20.5% off its January highs, while the tech-heavy Nasdaq is down nearly 30% this year.

The bear market for digital assets shows no signs of letting up, as total crypto market capitalization stands at $899.5B as of July 12, down 69% from the all-time highs of November 2021.