Rising U.S. Inflation Drives Fed Policy Shift as Bitcoin Rallies Toward a 98K Target

• Bitcoin’s resilience suggests a changing view of inflation’s impact on digital assets.
• U.S. inflation exceeds forecasts, delaying Federal Reserve rate cut expectations.
• Powell signals cautious Fed stance as inflation concerns persist despite progress.

The unexpected rise in U.S. inflation triggered a swift reassessment of Federal Reserve policy expectations. After an initial market downturn, Bitcoin and other cryptocurrencies bounced back. 

This signals that investors may view inflation risks differently. The latest Consumer Price Index (CPI) data for January 2025 overshot forecasts, delaying expectations for a Federal Reserve interest rate cut. Still, Bitcoin’s resilience marks a shift in how inflation affects digital assets.

Inflation Data Drives Market Moves

January’s CPI report showed a higher-than-expected inflation rate. Core CPI climbed 3.3% year-over-year, topping the predicted 3.1%. Overall CPI rose 3% annually, slightly above the forecast of 2.9% 

This prompted investors to adjust their outlook, moving the anticipated Fed rate cut from September to December. Initial market uncertainty gave way as Bitcoin recovered with traders realigning their positions.

The CPI tracks price changes in a typical basket of goods and services, providing a monthly inflation measure. In contrast, the Producer Price Index (PPI) tracks wholesale price shifts before they reach consumers, offering additional clues for policymakers and traders.

Related: Fed Hints at Smaller Rate Cut as Inflation Persists

Powell Speaks on Policy Direction

Federal Reserve Chair Jerome Powell addressed inflation concerns in his semiannual Monetary Policy Report. He noted that while progress exists, inflation remains a stubborn issue. 

Powell stated that policy must stay tight for now, reinforcing the Fed’s cautious approach. The Fed’s report describes financial conditions as “somewhat restrictive,” with future decisions hinging on economic data.

During an extended Q&A before the House Financial Services Committee, Powell took questions on inflation, interest rate paths, and economic forecasts. Lawmakers sought clarity on how upcoming U.S. policies might shape economic conditions. 

The latest labor market data, including a 143,000 increase in Nonfarm Payrolls (NFP) for January, underscore the Fed’s balancing act. Although below expectations, the Bureau of Labor Statistics (BLS) raised previous NFP figures, pointing to a stronger labor market.

Bitcoin’s Rally Reflects Market Sentiment

Bitcoin, as of press time, trades at $96,229.94 , up 0.06% over the past 24 hours. Yet, it fell 2.51% over the past week. 

Related: Crypto Bulls or Bears? 4 Key US Reports Releasing This Week To Decide

With 20 million BTC in circulation, Bitcoin’s market capitalization sits at $1.9 trillion. The CME Group FedWatch Tool indicates that market players assign less than a 10% chance of a Fed rate cut in March.