#CryptoCPIWatch US CPI Report: Cooling Inflation or Persistent Pressure? Implications for Markets and Crypto

Summary

Key Takeaways:

February CPI inflation is projected at 2.9% YoY, a slight decrease from 3.0% in January.

Core CPI is anticipated to ease to 3.2% from 3.3%.

The Federal Reserve's rate-cut outlook may pivot based on the CPI outcome.

Crypto markets, stocks, and the US dollar are poised to react to inflation trends.

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US Inflation Data: Cooling Expected, but Risks Remain

The US Bureau of Labor Statistics (BLS) is set to release the February Consumer Price Index (CPI) report on Wednesday at 12:30 GMT, providing key insights into inflation trends. Market analysts expect a modest decline in inflation, which could influence the Federal Reserve's policies, the US dollar, and risk assets like cryptocurrencies.

The headline CPI is projected at 2.9% YoY, down from 3.0% in January, marking the first simultaneous decline in both core and headline inflation since July 2024. Core CPI, which excludes food and energy, is expected to drop to 3.2% from 3.3%.

Monthly Inflation Projections:

Headline CPI: +0.3% MoM

Core CPI: +0.3% MoM

Analysts at TD Securities anticipate a broad-based decline, particularly in housing costs and goods prices, contributing to the easing trend.

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CPI Data and the Federal Reserve's Rate Decision

The Federal Reserve remains cautious about rate cuts, with Chair Jerome Powell recently noting that economic conditions are still "solid" and inflation must cool further before easing monetary policy.

Markets have already priced in 85 basis points (bps) of rate cuts for 2025, but persistent inflation could prompt the Fed to maintain a hawkish stance. Conversely, a softer inflation reading could solidify expectations for rate cuts beginning in June or July.

Impact Scenarios:

Below 2.9% CPI: Accelerated Fed rate cuts, USD weakens, risk assets rally (crypto, stocks).

Above 3.0% CPI: Fed maintains a restrictive policy, USD strengthens, stocks and crypto decline.