Bitcoin price could see significant gains today, Friday, December 23 at 8:30 a.m. (EST) if the Core Personal Consumption Expenditures Price Index (PCE) comes out better than expected. And chances are!
The price of Bitcoin has been heavily dependent on macro data and the decisions of the US Federal Reserve (FED) lately. The last FOMC meeting of the year on December 13 delivered a bearish surprise, even though the consumer price index (CPI) came in better than expected.
However, there was a catch. Rumors surfaced after the FOMC meeting that Chairman Jerome Powell was the CPI data who arrived a few hours before the meeting, although at the press conference he claimed the opposite. Within Wall Street, several analysts spoke out and accused Powell of cheating.
Why today’s core PCE is of paramount importance
The problem is that the Fed’s forecast for core PCE inflation seems way too high after the surprisingly weak CPI data, as Tomas Lee, an analyst at Fundstrat, said. writes.
As the overview of economic forecasts shows, the FED has raised the PCE’s core inflation target for 2022 from 4.5% to 4.8%. With that, Powell added “higher for longer” to the story. But there’s something “strange,” as Lee explained. The month-on-month percentage change in inflation would have to be staggeringly high to meet the FED’s target of 4.8%.
Lee wonders how the FED can predict core PCE inflation of 4.8% in 2022 when inflation moves towards 4.1-4.2%. “How Can the Fed Forecast Be So Far?” Lee wrote.
The analyst points to a ransomware attack on Haver Analytics as a possible reason for this big difference. The attack may have prevented Haver Analytics from updating the data. That’s why Jerome Powell and the FOMC committee ignored the positive data.
Therefore, according to Fundstrat’s analyst, today’s PCE release is of huge importance. Lee writes:
We think core PCE inflation will be 0.10%, compared to the Cleveland Fed inflation forecast of 0.26%. Any figure below 0.40% would make the #FOMC figure of 4.8% too high.
Remarkably, the PCE is also the most important data point for the US central bank. The forecasts and the Fed’s 2% target are not based on CPI, but on PCE. Twitter user ZeroHedge estimated based on this fact:
If tomorrow’s core PCE is 4.5% or lower (~75% chance), the whole hawkish FOMC repricing will be blown – no way 4.8% core PCE in December, SEP/Dots repriced and final rate tumbles.
The impact on Bitcoin price
If the PCE is significantly below the FED’s expectations, the theory could find confirmation today and could completely wipe out bearish sentiment. The FED may be forced to revise its forecasts as the PCE shows that inflation is under control.
This could prompt the FED to take a more dovish stance at its next meeting, with markets already leading the way today. Ultimately, the release of PCE could lead to a weaker dollar, spurring risky assets like Bitcoin.
At the time of writing, Bitcoin price stood at $16,827. Today, just like the past few days, the level will be at $16,900 main importance as the most crucial resistance at the moment.
If there is a strong push above this resistance, the next target would be the $17,400 region. Otherwise, Bitcoin investors should keep an eye on the USD 16,400 support.
Featured image from Traxer/Unsplash, chart from TradingView.com