Key takeaways:
CPI inflation for February is expected to be 2.9% year-on-year, down from 3.0% in January.
The forecast for core CPI is 3.2%, slightly down from 3.3% previously.
The prospect of US Federal Reserve rate cuts may change depending on CPI data.
Cryptocurrency markets, stocks, and dollar fluctuations depend on inflation trends.
US inflation data is expected to cool, but risks remain
The US Bureau of Labor Statistics (BLS) is preparing to release its Consumer Price Index (CPI) report for February on Wednesday at 12:30 GMT, providing critically important information on inflation trends. Market analysts expect a slight decrease in inflation, which could affect Federal Reserve policy, the US dollar, and risk assets like cryptocurrencies.
CPI inflation is expected to be 2.9% year-on-year, down from 3.0% in January, marking the first double decline in core and overall inflation since July 2024. The core CPI, which excludes food and energy, is expected to decrease to 3.2% from 3.3%.
Monthly inflation forecasts:
Overall CPI: +0.3% month-on-month
Core CPI: +0.3% month-on-month
TD Securities analysts predict a broad slowdown in inflation, noting that housing costs and goods prices may decline, contributing to a trend towards easing.
How CPI data can influence the Federal Reserve's rate decision
The Federal Reserve has shown caution regarding rate cuts, with Chair Jerome Powell stating last week that economic conditions remain 'stable,' but inflation needs to decrease further before easing monetary policy is considered.
Markets have already priced in 85 basis points (bps) of rate cuts in 2025, but persistent inflation may prompt the Fed to maintain a hawkish stance. On the other hand, softer inflation data could strengthen rate cut expectations starting in June or July.
Impact scenarios:
CPI inflation below expectations (below 2.9%) → Fed rate cuts may be accelerated, US dollar weakens, risk assets rise (cryptocurrency, stocks).
CPI inflation above expectations (above 3.0%) → Fed maintains tight policy, US dollar strengthens, stocks and cryptocurrency fall.
Trump's trade policy adds uncertainty to inflation
Although inflation may be declining, President Donald Trump's trade policy creates new risks. His administration has imposed tariffs on China, Canada, and Mexico, which could lead to increased 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 may remain stubborn, limiting the Fed's ability to cut rates.
Cryptocurrency markets and 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 decline of 16.2%.
Cryptocurrency investors are closely watching inflation data:
Low inflation → Bullish trend for Bitcoin and altcoins as Fed rate cuts become more likely.
High inflation → Bearish trend for cryptocurrency as the Fed maintains a tight stance, supporting the US dollar.
Current sentiment in the cryptocurrency 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 report on digital asset flows showed an outflow of $876 million, marking the fourth consecutive week of outflows from digital assets, indicating further market volatility.
The US CPI report will be an important catalyst for Federal Reserve policy, the US dollar, and risk assets such as cryptocurrency and stocks. While inflation is expected to cool, Trump's trade policy, supply chain disruptions, and market uncertainty could keep the Fed on alert.
Investors should prepare for increased volatility across all asset classes, with cryptocurrency markets particularly sensitive to inflation surprises and Fed rate cut expectations.
