Cooling US Inflation Sparks Rate Cut Hopes, Triggers $110M Crypto Short Liquidations, and Fuels Market Rally

April saw US core inflation cool for the first time in six months, hinting at potential rate cuts.
Economic experts believe the new data keeps hopes for rate cuts in 2024 alive.
Bitcoin and other cryptos rallied, liquidating over $110 million in short trades.

At the beginning of the year, investors had hoped for as many as six rate cuts in 2024 for the United States. However, subsequently, unfavourable economic data led some to believe that no rate cuts would occur this year.

Now, fresh data from the US shows we may see some cuts after all.

Related: VanEck Memecoin Index Soars Over 160% YTD as Solana Memecoin Frenzy Roars On

In April, underlying US inflation cooled for the first time in six months, as the Core Consumer Price Index (excluding food and energy) increased by 0.3% from March, ending a streak of three above-forecast readings.

Consumer Price Index for All Urban Consumers, source: US Bureau of Labor Statistics

The annual measure dropped to its slowest pace in three years, according to Bureau of Labor Statistics data.

This appears to be a welcome sign of rate cuts in 2024, as Kathy Bostjancic, chief economist at Nationwide Financial, said that the recent data “keeps alive the prospect of the Fed cutting rates in September”.

Kathy Jones, Managing Director and Chief Fixed Income Strategist at Charles Schwab agreed, saying:

It does open the door to a potential rate cut later in the year. It will take a few more readings indicating that inflation is coming down for the Fed to act.

Kathy Jones, Managing Director and Chief Fixed Income Strategist at Charles Schwab

But the chair of the Federal Reserve, Jerome Powell, earlier this week, put a dampener on the hopes for rate cuts when he said the Fed would “need to be patient and let restrictive policy do its work”.

Short Traders Lose $100 Million Amid CPI Trigger

Meanwhile, Bitcoin and almost all crypto assets have rallied, leading to liquidation of more than US$110 million (AU$164 million) of short traders.

Data from Coinglass shows US$58.3 million (AU$86.9 million) of BTC and US$22.2 million (AU$33 million) in ETH shorts have been liquidated.

Crypto Market Liquidation Heatmap, source: Coinglass

The short squeeze comes as BTC rallied to US$66k (AU$98.3K), a jump of 7.4% and ETH climbed back over US$3K (AU$4.47K) for the first time in almost a week, a 5% increase. Solana is the biggest gainer among the top 10 cryptocurrencies by market cap, having gained 13.5% and currently trading at US$160 (AU$238).

Amid the pump, the Fear-and-Greed Index has remained in greed territory, though gaining six points from yesterday and 15 points from last week, when it was tending toward neutral territory.