The Bitcoin price could see a significant uptick today Friday, December 23 at 8:30 am (EST) if the Core Personal Consumption Expenditures Price Index (PCE) comes in better than expected. And the chances are high!
Bitcoin price has been heavily dependent on macro data and the decisions of the U.S. Federal Reserve (FED) lately. The last FOMC meeting of the year on December 13 provided a bearish surprise, even though the consumer price index (CPI) came in better than expected.
However, there was a catch. After the FOMC meeting, rumors emerged that chairman Jerome Powell ignored the CPI data that arrived a few hours before the meeting, although he claimed the opposite in the press conference. Within Wall Street, several analysts spoke out, accusing Powell of hoaxes.
Why Today’s Core PCE Is Of Paramount Importance
The problem is that the Fed’s forecast for core PCE inflation seems far too high after the surprisingly weak CPI data, as Tomas Lee, an analyst at Fundstrat, writes.
As the economic forecast overview shows, the FED raised the core PCE inflation target for 2022 from 4.5% to 4.8%. With that, Powell added to the “higher for longer” narrative. But there is something “odd,” as Lee explained. The month-to-month percentage change in inflation would have to be staggeringly high to reach the FED’s 4.8% target.
Lee wonders how the FED can forecast 4.8% core PCE inflation in 2022 when inflation is moving toward 4.1-4.2%. “How can Fed forecast be so far??” Lee wrote.
The analyst points to a ransomware attack on Haver Analytics as a possible reason for this large divergence. Due to the attack, Haver Analytics may not have been able to update the data, which is why Jerome Powell and the FOMC committee ignored the positive data.
Therefore, according to the Fundstrat analyst, today’s PCE release is of massive importance. Lee writes:
We think core PCE inflation will be 0.10% compared to Cleveland Fed inflation NOW forecast of 0.26%. Any figure below 0.40% would make #FOMC figure of 4.8% too high.
Remarkably, the PCE is also the key data point for the U.S. central bank. The FED’s forecasts and its 2% target are not based on CPI, but on the PCE. Twitter user ZeroHedge estimated based on this fact:
If tomorrow’s core PCE is 4.5% or lower (~75% chance), the entire hawkish FOMC repricing is blown out – no way 4.8% core PCE in December, SEP/Dots repriced and terminal rate tumbles.
The Impact On The Bitcoin Price
If the PCE is significantly below the FED’s expectations, the theory would find confirmation today and could completely wipe out the bearish sentiment. The FED would possibly 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 the next meeting, with markets front-running this as early as today. Ultimately, the PCE release could lead to a weaker dollar, spurring risk assets like Bitcoin.
At press time, the Bitcoin price stood at $16,827. Today, like the last few days, the $16,900 level will be of key 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 support at $16,400.
Featured image from Traxer / Unsplash, Chart from TradingView.com