Casey Wagner

<div id="highlights-block_63209009ff134" class="highlights">
 <ul>
 <li>Bitcoin and equity markets dropped sharply shortly after the inflation numbers’ release</li>
 <li>Futures markets forecast a 82% chance of a 75 basis point rate hike on Sept. 21</li>
 </ul>
 
</div>



Inflation rose more than expected in August, posting an 8.3% year-over-year increase, <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank" rel="noreferrer noopener">data</a> from the Bureau of Labor Statistics showed Tuesday. 



Tuesday’s inflation reading came in <a href="https://cms.blockworks.co/inflation-is-cooling-but-rally-in-crypto-stocks-may-not-last/" target="_blank" rel="noreferrer noopener">lower than July’s</a>, but higher than analysts’ expectations. July’s CPI <a href="https://www.bls.gov/news.release/pdf/cpi.pdf" target="_blank" rel="noreferrer noopener">report</a> was 0.2% lower than projected, showing an 8.5% increase in prices across the board year over year.



Cryptocurrencies fell on the news, and equities opened lower following the report. Bitcoin lost as much as 6% while ether fell around 8%, extending its decline from earlier in the week as the Merge looms closer. The S&amp;P 500 and the Nasdaq index opened 2.3% and 3% lower, respectively, as traders speculated about what the data means for the future of monetary policy.&nbsp;



The Federal Reserve will meet on Sept. 21, and analysts are largely confident that the central bank may opt for yet another 75 basis point rate hike.&nbsp;



“Fed tightening cycles have led to so many recessions because they’re always looking in the rearview mirror,” Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence LLC, said Tuesday during a panel discussion at the <a href="https://cms.blockworks.co/events/digital-asset-summit-2022-nyc-agenda/" target="_blank" rel="noreferrer noopener">Digital Asset Summit</a> in New York. “That’s why the modern Fed has started to look at financial conditions as a bridge from the real economy, to the markets and stock prices.” 



The Fed’s key priority has traditionally been employment numbers over inflation, but the current situation is creating a unique challenge for central bankers, Michael Green, portfolio manager and chief strategist at Simplify, said during the panel. Continued tightening could result in inflation readings lower than the Fed’s target rate of 2%, he added.&nbsp;



“It’s highly likely we actually end up blowing way through the 2% and end up with deflationary conditions that then persist,” Green said.



<blockquote class="wp-block-quote">“We’re going to have tight financial conditions for an extended period of time, and that’s likely to manifest itself in all sorts of problems,” he said. </blockquote>



The reading comes weeks after Fed Chair Jerome Powell took a more hawkish stance during his Jackson Hole remarks, sending markets and cryptos sliding.&nbsp;



“Estimates of longer-run neutral are not a place to pause or stop,” Powell said during his speech on the second day of the <a href="https://www.kansascityfed.org/research/jackson-hole-economic-symposium/" target="_blank" rel="noreferrer noopener">Economic Policy Symposium</a> in August, hosted by the Kansas City Federal Reserve. “Our decision at that September meeting will depend on the totality of the incoming data and the evolving outlook,” he said. 



Futures markets are now predicting an 82% chance of a 75 basis point rate hike later in September following the release of the CPI report, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group. Following the Jackson Hole meeting, the probability of a third consecutive 75 basis point increase sat at 55%.



The dollar rallied sharply relative to other major currencies on the CPI release, with the DXY jumping over 1.5% in the hour that followed.



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Bitcoin Loses 6%, Equities Fall as Inflation Exceeds Estimates

<div id="highlights-block_616075b83ef17" class="highlights">
 <ul>
 <li>The US nonfarm payroll report showed 194,000 jobs were added, less than half of expectations </li>
 <li>Economists say we are in a recession, according to consumer sentiment data </li>
 </ul>
 
</div>



With consumer expectations and third-quarter earnings estimates on the decline, September’s jobs data brought more of the same.&nbsp;



The US economy added just 194,000 in nonfarm payrolls in September, compared with 366,000 in August, coming in less than half of the Dow Jones estimate of 500,000, the Labor Department <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">reported</a> Friday.&nbsp;



September’s unemployment rate came in at 4.8%, a decline from August’s 5.2%. Wages increased despite the jobs numbers, the average hourly earnings year-over-year in September increased 4.6%, compared with 4% in August.



<div class="embed-container"><iframe src="https://fred.stlouisfed.org/graph/graph-landing.php?g=IPyf&amp;width=670&amp;height=475" scrolling="no" frameborder="0" style="overflow:hidden;" allowtransparency="true" loading="lazy"></iframe></div><script src="https://fred.stlouisfed.org/graph/js/embed.js" type="text/javascript"></script>



Friday’s report also included revision data, which increased previous months’ reports. August’s disappointing numbers were revised up by more than 100,000 to 366,000 from the initially reported 235,000.



“It actually was better than it appeared, to be honest,” said Tom Essaye, founder of Sevens Report Research. “If you look at the revisions for August, the revisions were pretty positive.”&nbsp;



Leisure and hospitality once again led to jobs gains, adding 74,000 positions to the sector. Transportation and warehousing, construction, and manufacturing also saw high gains.&nbsp;



The education sector saw the largest decline in terms of job growth. Local government education employment decreased by 144,000 in September and state government education positions declined by 17,000. Experts are largely attributing the decline to covid-related issues and do not expect the trend to continue.&nbsp;



“That&#8217;s sort of a weird anomaly, that&#8217;s not something that people think is structurally going to continue,” Essaye said. “I don&#8217;t want to say it&#8217;s a good number, certainly we would have liked something much higher, but it&#8217;s not quite as bad as sort of was made out to be when the number first came out.”&nbsp;



New research released Thursday from David Blanchflower of Dartmouth College and Alex Bryson of University College London suggests that even with revisions and increases in wages, America is still likely in a recession. The two economists point to consumer expectations indexes from the Conference Board and <a href="https://cms.blockworks.co/inflation-heats-up-as-economic-data-comes-in/">University of Michigan</a>, both of which revealed declining sentiment in recent months, as a key indicator of American economic downturns.&nbsp;



“These surveys are much more important than anything macro forecasters are doing,” <a href="https://www.youtube.com/watch?v=_-jmDyg0AcE">said Blanchard</a> of the two reports.&nbsp;



The Conference Board consumer confidence index declined for a third straight month in September. University of Michigan’s preliminary consumer sentiment index inched slightly higher in September but remained near a decade low.&nbsp;



“However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now,” Blanchflower and Bryson said in the report.&nbsp;



Regardless of the disappointing data, Essaye remains confident that we should expect to see some sort of tapering from the Federal Reserve before the end of the year.&nbsp;



“I think definitely the Fed will taper by the end of the year,” he said. “In order for the Fed not to taper, I think that the data would have to turn down really hard.”&nbsp;

bureau of labor statistics