US Consumer Spending Surges, Boosting Risk Appetite and Potentially Supporting bitcoin
American consumer spending experienced a stronger-than-anticipated rise in August, signaling continued resilience in the US economy despite concerns surrounding inflation and a cooling labor market. The Bureau of Economic analysis (BEA) reported a 0.6 percent increase in consumption, exceeding economists’ expectations of 0.5 percent.
spending Driven by Higher Income Households
The growth in spending is largely attributed to households wiht higher incomes, benefiting from gains in the stock market and rising home values. Reuters reported that total US household wealth reached a record $176.3 trillion in the second quarter.Conversely, lower-income households are facing increased pressure from higher prices, particularly for imported goods, and anticipate reduced support from federal food assistance programs.
Economists caution that a potential correction in the stock and housing markets poses the biggest risk to continued consumer spending. “Asset effects have become more powerful for consumption,” explained Ryan Sweet, chief economist at Oxford Economics. “This is positive as long as shares and house prices rise, but a risk as soon as they falter.”
Inflation Moderates, Fed Cuts Rates
Inflation showed signs of moderation in August. The PCE price index, a key metric for the Federal Reserve, rose 0.3 percent month-over-month. year-over-year inflation stood at 2.7 percent,while the core-PCE (excluding food and energy) remained steady at 2.9 percent.
responding to these economic signals, the Federal Reserve lowered the policy interest rate by 25 basis points last week, bringing the target range to 4.00 to 4.25 percent. FED Chairman Jerome Powell acknowledged increasing risks to the labor market while noting that inflationary pressures remain.
The CME watch tool currently indicates an 87.5 percent probability of another 25 basis point rate cut in October, though a pause to further assess inflation trends remains a possibility.
Impact on Bitcoin and Cryptocurrency Markets
Strong consumer spending and a robust US economy typically encourage a higher risk appetite among investors. Coupled with the Federal Reserve’s interest rate reduction, this environment can provide support for riskier assets like Bitcoin (BTC) and Ethereum (ETH). Following the release of the economic figures, BTC saw a modest increase of around 0.5 percent, while ETH experienced a more meaningful jump of 2 percent. Though, a slight market correction shortly after suggests investors are remaining cautious.
