#CryptoCPIWatch US CPI Report: Cooling inflation or persistent pressure? What does it mean for markets and cryptocurrencies?
AI Summary
Key takeaways:
The CPI inflation rate for February is expected to be 2.9% YoY, down from 3.0% in January.
Core CPI is projected at 3.2%, slightly down from the previous 3.3%.
The prospect of Federal Reserve rate cuts may change based on CPI data.
Crypto, stock markets, and US dollar fluctuations depend on inflation trends.
US inflation data is expected to show a cooling, but risks remain
The US Bureau of Labor Statistics (BLS) is set to release its February Consumer Price Index (CPI) report on Wednesday at 12:30 GMT, offering critical insight into inflation trends. Market analysts anticipate a slight decrease in inflation, which could influence the Federal Reserve's policy, the US dollar, and risk assets like cryptocurrencies.
The general CPI inflation rate is expected to be 2.9% year-on-year (YoY), down from 3.0% in January, marking the first dual decline in core and general inflation since July 2024. The core CPI inflation rate, which excludes food and energy, is projected to drop to 3.2% from 3.3%.
Monthly inflation projections:
General CPI: +0.3% MoM
Core CPI: +0.3% MoM
TD Securities analysts forecast a widespread slowdown in inflation, noting that housing costs and goods prices may decrease, contributing to a relief trend.
How CPI data could affect the Federal Reserve's rate decision
The Federal Reserve has signaled caution on rate cuts, with Chairman Jerome Powell stating last week that economic conditions remain "solid" but inflation needs to cool further before considering monetary relief.
Markets have already priced in 85 basis points (bp) of rate cuts in 2025, but persistent inflation could force the Fed to maintain an aggressive stance. On the other hand, a softer inflation report could solidify expectations for rate cuts starting in June or July.
Impact scenarios:
Lower than expected CPI (below 2.9%) → Fed rate cuts could accelerate, USD weakens, risk assets rise (crypto, stocks).
CPI higher than expected (above 3.0%) → Fed maintains a restrictive policy, USD strengthens, stocks and cryptocurrencies decline.
Trump's trade policies add inflationary uncertainty
Although inflation may be cooling, President Donald Trump's trade policies pose new risks. His administration has imposed tariffs on China, Canada, and Mexico, which could trigger higher import prices and supply chain disruptions, potentially reigniting inflationary pressures.
Historically, the Federal Reserve has dismissed tariffs as one-off inflationary events, but if these policies escalate, inflation could remain stubbornly high, limiting the Fed's ability to cut rates.
Crypto Markets and the Inflation Report
Cryptocurrency markets remain directionless ahead of the CPI update, with Bitcoin (BTC) trading around $82,185, down 25% from its peak, and Ethereum (ETH) at $1,889, marking a weekly loss of 16.2%.
Crypto investors are closely watching inflation data:
Lower inflation → Bullish for Bitcoin and altcoins as Fed rate cuts become more likely.
Higher inflation → Bearish for crypto as the Fed remains restrictive, strengthening the US dollar.
Current sentiment in the crypto market:
Bitcoin: +0.57% at $82,185
Ethereum: -1.75% at $1,889
XRP: +1.6%
Dogecoin: +2.5%
Solana, Cardano: slight declines
Meanwhile, CoinShares' Weekly Digital Asset Fund Flows Report showed $876 million in outflows, marking the fourth consecutive week of investment outflows in digital assets, with more market volatility ahead.
The US CPI report is set to be a significant catalyst for the Federal Reserve's policy outlook, the US dollar, and risk assets such as crypto and stocks. Although inflation is expected to cool, Trump's trade policies, supply chain disruptions, and market uncertainty could keep the Fed cautious.
Investors should prepare for increased volatility across all asset classes, with crypto markets especially sensitive to inflation surprises and Fed rate cut expectations.
