Bitcoin price is poised to rally on today’s PCE exit

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The price of Bitcoin could see a significant rise today Friday, December 23 at 8:30 a.m. (EST) if the Core Personal Consumption Expenditure (PCE) price index is better than expected. And the odds are high!

Bitcoin price has been highly dependent on macro data and US Federal Reserve (FED) decisions lately. The last FOMC meeting of the year on December 13 provided a downside surprise, although the consumer price index (CPI) was better than expected.

However, there was a catch. After the FOMC meeting, rumors emerged that Chairman Jerome Powell ignored CPI data that came in hours before the meeting, despite claiming otherwise at the press conference. Within Wall Street, several analysts spoke up, accusing Powell of hoaxes.

Why today’s basic ECP is of paramount importance

The problem is that the Fed’s forecast for core PCE inflation looks way too high after the surprisingly weak CPI data, as Fundstrat analyst Tomas Lee writes.

As shown in the economic forecast overview, the FED raised the core PCE inflation target for 2022 from 4.5% to 4.8%. With that, Powell added “higher for longer” to the narrative. But there is something “odd”, as Lee explained. The month-to-month percent change in inflation would need to be incredibly high to hit the Fed’s 4.8% target.

Lee wonders how the FED can predict core PCE inflation of 4.8% in 2022 when inflation is heading towards 4.1-4.2%. “How can the Fed forecast be so far off?” Lee wrote.

The analyst points to a ransomware attack on Haver Analytics as a possible reason for this large discrepancy. Due to the attack, Haver Analytics may not have been able to update the data, which is why Jerome Powell and the FOMC committee ignored the positive data.

Therefore, according to the Fundstrat analyst, today’s PCE release is of paramount importance. Lee writes:

We expect core PCE inflation to be 0.10% vs. Cleveland Fed inflation NOW forecast at 0.26%. Any figure below 0.40% would make the #FOMC figure of 4.8% too high.

Remarkably, the PCE is also the key data point for the US central bank. The Fed’s forecasts and its 2% target are not based on the CPI, but on the PCE. Twitter user ZeroHedge estimated based on this fact:

If tomorrow’s core PCE is 4.5% or less (~75% chance), the entire hawkish FOMC price review is blown – no way December’s 4.8% core PCE , the SEP / Dots was revised and the terminal rate fell.

The impact on the Bitcoin price

If the PCE is significantly lower than the Fed’s expectations, the theory would find confirmation today and could completely destroy the bearish sentiment. The FED might be forced to revise its forecasts because the PCE shows that inflation is under control.

This could prompt the Fed to adopt a more dovish stance at the next meeting, with the markets leading today. Ultimately, the PCE release could lead to a weaker dollar, boosting risky assets like Bitcoin.

As of press time, Bitcoin price stands at $16,827. Today, like the past few days, the $16,900 level will be of paramount importance as the most crucial resistance at this time.

If there is a strong push above this resistance, the next target would be the $17,400 region. Otherwise, Bitcoin investors should keep an eye on the support at $16,400.

BTC price, 4 hour chart

Featured image from Traxer / Unsplash, chart from TradingView.com

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