this happens behind the scenes in the markets

The cryptocurrency market has been ablaze this week. The debacle of one of the largest and most important exchanges on the planet, FTX, could not go unnoticed by investors. And so it did, with hundreds of cryptocurrencies (bitcoin in the lead) suffering a violent collapse in their respective share prices.

But in the midst of this chaos, in which bitcoin (BTC) fell below $17,000 for the first time in about 2 years, another event was shaking the markets behind the scenes: Inflation begins to decline in the United States.

According to data released Thursday by the U.S. Bureau of Labor Statistics, inflation Annualized inflation for October was 7.7 percent. Although the number does not seem that positive, it represents the lowest inflation rate recorded since January of this year.

The market response was immediate, with bitcoin climbing back above $17,000. Today, despite a slight decline following FTX’s bankruptcy filing, which we reported on in CryptoNews, the cryptocurrency’s share price remains close to that price.

The recovery in the cryptocurrency market has been widespread. So much so that there has been a significant rebound in Solana (SOL).one of the hardest hit cryptocurrencies in the market in recent days.

But while cryptocurrencies rose on the relief of the inflation figure reported by U.S. authorities, it was the traditional markets that benefited the most from the news. After all, there is still much chaos associated with FTX in the “crypto” environment.

Stock reaction

Traditional markets reacted strongly, while the cryptocurrency market moved cautiously. Indices such as the S&P 500, Dow Jones or Nasdaq rose between 3 percent and 6 percent on the day..

These are figures that seem low considering the strong movements of cryptocurrencies, but for the world’s stock markets and various exchanges, these are very substantial increases.

Analysts believe that this reaction is a clear sign of relief to markets and risk investors that the economic situation in the United States is beginning to improve.

As we previously reported on CryptoNews, in the midst of the crisis there was a lot of fear of taking on new risks. This, clearly, affected the prices of various types of investment instruments.. These include stocks and, of course, cryptocurrencies.

The new expectation

Now, with signs of economic recovery, investors may look favorably on taking riskier trades in search of returns for the long-term future.

Consequently, the expectation now extends to how the U.S. Federal Reserve, the Fed, will react to this easing. The Fed’s next announcement is expected, after it raised interest rates by another 75 points earlier this month.

The expectation is that the Fed will now proceed with a less aggressive rate hike.after several months of sharp increases in an attempt to curb the prevailing inflation in the U.S. economy.

“This consumer price index report is interpreted as very positive news,” said Carola Binder, associate professor of economics at Haverford College and senior scholar affiliated with the Mercatus Center at George Mason University, as reported by Voice of America.

The stock market is up and markets are discounting a lower probability that the Fed will have to make another rate hike of 75 basis points. There is a greater likelihood than in the past that a rate hike of 50 basis points will suffice.

Carola Binder, US economist and lecturer.

On the Fed’s agenda, it is expected that the next announcement on interest rates will be made between December 13 and 14. Until then, we will know what actions the U.S. government will take and how bitcoin will react.

At the time of writing, BTC is trading above $16,900 according to data from CoinMarketCap.