#CryptoCPIWatch U.S. CPI Report: Cooling inflation or persistent pressure? What does it mean for markets and cryptocurrencies?

AI summary

Key conclusions:

February CPI inflation is expected to be 2.9% year-on-year, down from 3.0% in January.

The core CPI is expected to stand at 3.2%, a slight decrease from the previous 3.3%.

The outlook for U.S. Federal Reserve rate cuts may change based on CPI data.

Cryptocurrency markets, stocks, and fluctuations in the U.S. dollar depend on inflation trends.

U.S. inflation data is expected to show a cooling trend, but risks remain.

The U.S. Bureau of Labor Statistics (BLS) will release its February Consumer Price Index (CPI) report on Wednesday at 12:30 GMT, providing a crucial perspective on inflation trends. Market analysts anticipate a slight decrease in inflation, which could influence Federal Reserve policy, the U.S. dollar, and risk assets like cryptocurrencies.

The overall CPI inflation rate is expected to be 2.9% year-on-year, down from 3.0% in January, marking the first dual decline of core and overall inflation since July 2024. The core CPI inflation rate, which excludes food and energy, is projected to fall to 3.2% from 3.3%.

Monthly inflation projections:

Overall CPI: +0.3% month-on-month

Core CPI: +0.3% month-on-month

TD Securities analysts predict a widespread slowdown in inflation, indicating that housing costs and goods prices could decrease, contributing to a trend toward deceleration.

How CPI data could affect the Federal Reserve's rate decision

The Federal Reserve has shown caution regarding rate cuts, and its chairman Jerome Powell stated last week that economic conditions remain 'solid,' but inflation must cool further before monetary easing is considered.

Markets have already priced in 85 basis points (bp) of rate cuts in 2025, but persistent inflation could force the Fed to maintain a restrictive stance. On the other hand, more moderate inflation could solidify rate cut expectations starting in June or July.

Impact scenarios:

CPI lower than expected (below 2.9%) → Fed rate cuts could accelerate, the dollar weakens, risk assets rise (cryptocurrencies, stocks).

CPI higher than expected (above 3.0%) → Fed maintains restrictive policy, USD strengthens, stocks and cryptocurrencies decline.

Trump's trade policies increase inflationary uncertainty

While inflation may be declining, President Donald Trump's trade policies pose new risks. His administration has imposed tariffs on China, Canada, and Mexico, which could lead to higher import prices and supply chain disruptions, potentially reigniting inflationary pressures.

Historically, the Federal Reserve has dismissed tariffs as isolated inflationary events, but if these policies escalate, inflation could remain stubbornly high, limiting the Fed's ability to cut rates.

Cryptocurrency markets and the inflation report

Cryptocurrency markets remain directionless ahead of the CPI update, with Bitcoin (BTC) trading around $82,185, 25% down from its peak, and Ethereum (ETH) at $1,889, marking a weekly loss of 16.2%.

Cryptocurrency investors are closely monitoring inflation data:

Lower inflation → Bullish for Bitcoin and altcoins as Fed rate cuts become more likely.

Higher inflation → Worse for cryptocurrencies as the Fed remains restrictive, boosting the U.S. dollar.

Current sentiment in the cryptocurrency market:

Bitcoin: +0.57% to $82,185

Ethereum: -1.75% to $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 outflows from digital asset investments, leading to increased market volatility.

The U.S. CPI report will be a key catalyst for the Federal Reserve's political outlook, the U.S. dollar, and risk assets like cryptocurrencies and stocks. While inflation is expected to moderate, 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, and cryptocurrency markets are especially sensitive to inflation surprises and expectations of Fed rate cuts.