Inflation rises and greatly reduces the probability that bitcoin will benefit from a rate cut from the FED or the ECB this summer.
Inflation is picking up again in the United States
Prices are going back up. The figures for the last three months have all come out above expectations across the Atlantic. The annual inflation rate published this Wednesday stood at 3.5%, compared to 3.2% in February. We are at the highest level for six months.
This is certainly less than the 4.9% recorded in March 2023, but it is enough to reduce to zero the expectations of rate cuts in 2024. It could even be that we will soon have to expect that the FED raises its rates. Fed Governor Michelle Bowman said last week she was ready for it “if progress in inflation were to stop or even reverse”.
Knowing that we have to go back 23 years to see interest rates as high as they already are…
Why so much inflation? Because of the price of a barrel of oil (as always) which is rising against a backdrop of geopolitical tensions. Particularly because of fears of Iranian reprisals against Israel following the bombing of its embassy in Damascus.
A barrel of WTI now costs $86, compared to $63 on average over the last ten years. However, 95% of freight transport runs on oil. Any increase in the price of naphtha automatically results in widespread inflation, especially in foodstuffs.
The concerns are such that former Treasury Secretary Larry Summers told Bloomberg that the rate cut expected in June could be a “dangerous and flagrant error”.
The Futures market now puts the probability of a status quo from the Fed at the June meeting at 83%.
Interestingly, and like the Governor of the Bank of France François Villeroy, Mr. Summer believes that “the neutral rate is well above the level of 2.6%”.
[Le taux neutre est le taux qui prévaudra après la baisse des taux.]
The ECB cautious
The central bank of the twenty Euro Zone countries maintained its key rate at 4% this Wednesday, unchanged since September.
Unlike the United States, inflation continues to fall in Europe. The annual rate was 2.4% in March, compared to 2.6% in February.
Christine Lagarde therefore repeated that “if” the next data “should further strengthen its confidence in the sustainable convergence of inflation towards the objective, it would be appropriate to reduce the current restrictive nature of monetary policy”.
But the heart wasn't in it. The President of the ECB insisted on energy prices, suggesting that a prolonged rise in energy prices could encourage the ECB to be cautious.
Here is the passage from his speech about it :
“Inflation is expected to fluctuate around current levels over the coming months and then fall to our target next year, due to lower wage growth, the effects of our restrictive monetary policy and easing of the impact of the energy crisis. »
However, energy prices are rising sharply. They should very soon stop the decline in inflation on the old continent. And while Christine Lagarde declared in January that she foresees a drop in rates as early as “this summer”, it seems that it has been postponed.
In other words, after ETFs and halving, bitcoin could ultimately not benefit from monetary easing in the process. To be continued.
Note also that the ECB continues to reduce its balance sheet by around 30 billion euros per month. A figure which should increase to 37.5 billion euros from the second half of the year.
Inflation will never stop
As Michael Saylor says, “I can make you the undisputed master of the world, you will not be able to prevent inflation.”
Central banks know this and have made it their mission to only contain it to 2%. We wrote about this in our article Fiat vs. Bitcoin :
“This is how our civilization creates money from debt. A debt with interest that mathematically requires you to go into ever more debt, under penalty of recurring payment defaults. […] The fiat system is a ponzi that needs economic growth to avoid ending up in hyperinflation. Which means extracting more and more energy. »
Unfortunately, the fruit from the lower branches was picked. Maintaining an increase in oil production is increasingly difficult. The peak of cheap oil to come out of the ground (“conventional” oil) was reached in 2007…
We are entering the hard part and this is easily observed in the inflation figures of recent years. As we pointed out in this article:
“Food inflation has reached almost 40% since 2019 in the United States. Or 8% per year on average. Against only 25% officially, due to the multiple accounting tricks implemented to hide reality. »
8%! Annual inflation of 8% means that prices double after nine years. In other words, the purchasing power of savings has halved in less than a decade.
Let's say, for example, that you save 10,000 euros at a rate of 3% per year. You will have 13,440 euros after ten years. But if annual inflation was 8% at the same time, your purchasing power has actually fallen by almost 40%…
It is increasingly clear that we are living in pivotal times. Inflation will worsen and make bitcoin more and more attractive as a reserve that is infinitely rarer than gold and less risky than other global technological monopolies like Microsoft or Apple.
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