Cryptocurrency Market Falls Amid Higher-Than-Expected US Inflation Data

Bitcoin and other altcoin prices dropped on Wednesday following the release of hotter-than-expected US consumer inflation data. The Bitcoin price declined by 3%, while other popular altcoins experienced steeper declines. Litecoin was one of the worst-performing coins, plummeting over 11% in the past 24 hours.

US Inflation Soars in January

The main catalyst for the sell-off was a report showing that US inflation surged in January, a trend that may continue this month. The headline Consumer Price Index (CPI) rose from 0.4% in December to 0.5% in January, exceeding the median estimate of 0.5%. This increase translated to an annual rise of 3.0%, the highest level in several months.

Core consumer inflation climbed from 0.2% to 0.4% on a monthly basis and from 3.2% to 3.3% annually. These numbers pushed US stock futures lower, with the Dow Jones and Nasdaq 100 indices dropping more than 400 points. US bond yields surged, with the 10-year and 30-year yields rising to 4.63% and 4.82%, respectively.

Market Reaction and Interest Rate Expectations

The market reaction was primarily driven by expectations of higher interest rates for longer. In a statement on Tuesday, Federal Reserve Chair Jerome Powell reiterated that the Fed was in no rush to cut rates, citing persistently high inflation. Fed official Beth Hammack echoed a similar stance, stating that future rate decisions should depend on inflation declining further. She emphasized:

“As long as the labor market remains healthy, I am looking for broad-based evidence that inflation is sustainably returning to 2% before adjusting policy further.”

Impact of Higher Inflation on Cryptocurrencies

Higher inflation affects Bitcoin and other altcoins like Solana and Shiba Inu due to its impact on interest rates and bond markets. The Fed has a dual mandate of maintaining low inflation and a stable labor market. It typically cuts rates when inflation falls to stimulate consumption. However, with CPI moving further from the 2% target, the likelihood of additional rate cuts has diminished.

Key Takeaways on US Inflation Data

The four main takeaways on the higher-than-expected inflation data for the US are:

  • Inflation is hotter than the Federal Reserve expected based on its signals, and is getting hotter.
  • The latest numbers are consistent with other data points.

As seen in 2022, Bitcoin and altcoins tend to decline when the Fed raises rates. Conversely, they often rebound when the Fed signals a shift toward rate cuts, as happened in early 2024.

Stay updated on the latest cryptocurrency news and trends on Global Crypto News.

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