Crypto Investors Watch Labor and Inflation Signals for Clues on Fed’s Next Move

The crypto and other financial markets are getting into a data intensive week that may act decisively in determining expectations about the monetary policy and the investor mood in the near future. Although the first part of the week is rather quiet (because of the U.S. holiday-shortened weekends), the focus on a set of macroeconomic releases soon helps us see how early interest rate cuts might come.

As the liquidity is thinner at the beginning of the week because the U.S. markets have been closed during the Presidents Day, the crypto analysts anticipate calm trading conditions before volatility which may increase in the middle of the week.

Fed Minutes in Focus

The publication of the new minutes of the Federal Reserve session on Wednesday will offer investors a better understanding of how the policymakers think about inflation, economic growth, and when the rates will be changed.

The market participants will be keen to analyse the tone of the discussions and especially any indication of confidence in the disinflation trend or fears that inflation might be sticky. In recent communications, policymakers, led by its Chair Jerome Powell, have highlighted the importance of data dependency, which puts investors very sensitive to the economic indications coming their way.

The minutes can help explain whether the officials think the current policy is restrictive enough or they need more time to be patient before they can relax the financial conditions.

Labor Market Snapshot Adds Another Layer

The Thursday Preliminary Jobless Claims report will provide a fine time-sensitive indicator of the strength of the labor market. The endurance of the U.S. economy has been based on employment strength, though any indication of its weakening should support the view that the Fed can afford to take a pivot towards reduction of rates later in the year.

Economists observe that any slight adjustment in the number of claims can alter the mood especially in a context where the policy makers are juggling between the dangers of inflation and the growth issue.

Core PCE: The Week’s Main Catalyst

The most important event of the week is generally considered to be Friday release of December unemployed Core Personal Consumption Expenditures (Core PCE) inflation which is the more favored measure of price pressures used by the Fed.

In contrast to headline measures of inflation, Core PCE removes the unstable elements of food and energy, which can give a better perspective of the real price pressures. An unexpectedly low reading would bolster the argument of monetary easing, whereas a hot print would shift the expectation of a rate reduction yet again.

Crypto markets are becoming more responsive to inflation surprises with every piece of information revising policy normalization predictions.

Why This Week Matters For Crypto & Other Markets

When these factors are combined, the central bank wisdom, labor statistics, and one of the most important inflation indicators may transform the assumptions regarding the interest rate evolution and overall crypto market orientation.

Such a muted beginning can be replaced with increased volatility as investors revisited risk, rebalanced portfolios, and reacted to changing indications of economic momentum.

As long as we all live to see it, macroeconomic information will probably be the focus of the week, instead of earnings or geopolitical factors defining the feeling in the equities, bond, and crypto asset market.