Thread by @tedtalksmacro

1/ Deciphering this week's US CPI print.

In this thread I'll explain:
- The Fed's current inflation goals
- Which data points matter most when monitoring inflation + what they mean
- The current inflation picture

And how all of that could impact the crypto market 👇

2/ The US Federal Reserve/FOMC exist to:

'Pursue the economic goals of maximum employment and price stability - by conducting monetary policy.'

Where 'price stability' = INFLATION

3/ Since January 2012 the Fed's explicit longer-run inflation goal had been 2% year-on-year.

However, this goal shifted in 2020 to 'AVERAGE 2% inflation over time' - but over what time exactly?

The time question is unanswered and the market may be confused as a result!

4/ Data due on Wednesday will give us an insight as to whether or not the Fed are winning the battle to bring inflation back down towards their 'goal' - US CPI data is due at 12:30pm UTC

Winning the battle will be bullish for #Bitcoin, losing the battle bearish.

I'll explain.

5/ The Fed monitor CPI and PCE data to understand whether they need to do more, less or nothing at all to achieve their inflation goal and therefore satisfy their price stability mandate.

CPI data is in focus this week so we'll focus on that data for now, PCE comes on Aug 26th.

6/ On Wednesday, two distinct CPI/inflation prints are due:

1. Headline CPI - Calculated based on all aspects of the economy that experience inflation

2. Core CPI - The headline number, excluding volatile food and energy prices (which are heavily influenced by seasonality)

7/ Now which number to watch, headline or core?

It makes sense for the Fed to target CORE inflation - typically monetary policy has little impact on food + energy prices, excluding those can remove the volatile price fluctuations owed to unforeseen supply shock + seasonality.

8/ The current picture...

Although month-on-month (MoM) core has edged higher recently, year-on-year (YoY) Core CPI has now fallen for three consecutive months and you could start to argue that the Fed are gaining a hold on runaway inflation.

9/ However, the consensus is that YoY core CPI rose in July to 6.1% - if that's shown to be true on Wednesday it will buck the down trend of recent months (that no doubt helped risk markets stabilise and rally higher)

MoM core CPI is expected to have risen by 0.5%

10/ Another uptick in core could have the market wondering if inflation is yet to peak, leading to speculation on tighter monetary policy and that would become bearish for crypto and other risk assets.

11/ On the other hand, YoY core printing <6.0% and below MoM consensus = bullish crypto, and should lead to a soft confirmation that inflation has peaked.

12/ Contrasting core CPI, headline inflation continued higher in June to 9.1% but the expectation is for a lower number (8.7%) on Wednesday.

A fall in the headline number could be taken as bullish for crypto, although I believe that core CPI will be more telling.

13/ Most of the crypto market finds itself at resistance ahead of this data print.

Logically shorts would be the play or to TP on longs... but the CPI numbers could send a big green dildo into crypto land, long volatility is a better bet than an outright bet on direction imo.