US CPI Report: Cooling inflation or persistent pressure? What this means for markets and cryptocurrencies
AI Summary
Key Takeaways:
February CPI inflation is expected at 2.9% year-on-year, down from 3.0% in January.
Core CPI is projected at 3.2%, a slight decrease from the previous 3.3%.
The outlook for US Federal Reserve rate cuts may change based on CPI data.
Cryptocurrency, stock markets, and fluctuations in the US dollar depend on inflation trends.
US inflation data is expected to show cooling, but risks remain
The US Bureau of Labor Statistics (BLS) is set to release its Consumer Price Index (CPI) report for February on Wednesday at 12:30 GMT, providing crucial insight into inflation trends. Market analysts predict a slight decline in inflation, which could influence Federal Reserve (Fed) policy, the US dollar, and risk assets like cryptocurrencies.
The core CPI inflation rate is expected to be 2.9% year-on-year (YoY), down from 3.0% in January, marking the first double decline in both core and overall inflation since July 2024. The core CPI inflation rate, which excludes food and energy, is expected to decrease from 3.3% to 3.2%.
Monthly inflation projections:
Core CPI: +0.3% MoM
Core CPI: +0.3% MoM
TD Securities analysts predict a widespread slowdown in inflation, noting that housing costs and product prices may decline, contributing to a deceleration trend.
How CPI data can affect the Federal Reserve's interest rate decision
The Federal Reserve has signaled caution regarding rate cuts, with Chairman Jerome Powell stating last week that economic conditions remain 'solid,' but inflation needs to cool further before monetary easing is considered.
Markets have already priced in 85 basis points (bps) of rate cuts by 2025, but persistent inflation may force the Fed to maintain a more aggressive stance. Conversely, weaker inflation could solidify expectations for rate cuts starting in June or July.
Impact scenarios:
CPI below expectations (below 2.9%) → Fed rate cuts may be accelerated, US dollar weakens, risk assets recover (cryptocurrencies, stocks).
CPI above expectations (above 3.0%) → Fed maintains restrictive policy, USD strengthens, stocks and cryptocurrencies fall.
Trump's trade policies increase inflation uncertainty
While inflation may be decreasing, President Donald Trump's trade policies present 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 one-off inflationary events, but if these policies escalate, inflation may 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, down 25% from its peak, and Ethereum (ETH) at $1,889, marking a weekly loss of 16.2%.
Cryptocurrency investors are closely watching inflation data:
Lower inflation → Optimism for Bitcoin and altcoins as Fed rate cuts become more likely.
Higher inflation → Pessimism for cryptocurrencies, as the Fed remains restrictive, boosting 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 Digital Asset Fund Flows Report showed $876 million in outflows, marking the fourth consecutive week of outflows from digital asset investments, further increasing market volatility.
The US CPI report is expected to be a key catalyst for the Federal Reserve's (Fed) policy outlook, the US dollar, and risk assets like cryptocurrencies and stocks. While inflation is expected to cool, Trump's trade policies, supply chain disruptions, and market uncertainty may keep the Fed cautious.
Investors should prepare for greater volatility across all asset classes, with cryptocurrency markets particularly sensitive to inflation surprises and Fed rate cut expectations.
