U.S. Inflation Slows, Boosting Rate Cut Hopes, Bitcoin Unmoved

Recent data from the Bureau of Labor Statistics indicates a deceleration in U.S. inflation, which has bolstered expectations for the Federal Reserve to consider rate cuts. The core Consumer Price Index (CPI) rose by only 0.2% month-over-month, falling short of the anticipated 0.3% increase. This slower inflation rate has been interpreted by investors as a potential signal for the Federal Reserve to ease its monetary policy.

Lower interest rates typically increase liquidity in the market, making bonds less attractive and potentially channeling capital into equities and digital assets. However, despite the positive inflation data, Bitcoin (BTC) has not shown significant growth, having lost 15% in the last four weeks and remaining within the range of $80,625 to $84,302. Experts have differing views on the impact of the slowing inflation on Bitcoin. Andre Dragosch, a prominent researcher, believes that the slower inflation rate provides the Federal Reserve with more room to cut rates, which could support Bitcoin in the long run. However, he notes that the market remains cautious for now.

On the other hand, Yuwei Yang, the chief economist at a major mining company, warns that one positive inflation figure is not enough to eliminate weeks of market fear and uncertainty. Investors are still cautious, and the market remains under pressure. An additional layer of uncertainty comes from the aggressive trade policies of Donald Trump. Tariffs on imports could increase the cost of goods, potentially slowing down the decline in inflation and making it more challenging for the Federal Reserve to ease its policy. This dual pressure of high inflation due to tariffs and the risk of a recession or market collapse presents a complex scenario for the Federal Reserve.

Despite these challenges, there are signs of institutional interest in Bitcoin. Bitcoin-ETFs recorded an inflow of $13.3 million, breaking a five-day streak of outflows. This indicates that institutional investors are closely monitoring the Federal Reserve's policy. If the Fed hints at easing, flows into cryptocurrency ETFs could intensify, providing support for Bitcoin in the $72,000 to $75,000 range. The market is now focused on the upcoming Federal Reserve meeting on March 19, where the regulator will confirm its plans for rate cuts and address the potential impact of Bitcoin ETFs on the market. The outcome of this meeting could determine the next wave of growth for Bitcoin and other risky assets.

The latest economic data from the United States shows a notable slowdown in inflation, which has increased expectations for the Federal Reserve to resume cutting interest rates by mid-year. The annual inflation rate decreased to 2.8% in February from 3% in January, falling below the anticipated 2.9%. Additionally, the monthly consumer price index (CPI) growth slowed to 0.2%, also under forecasts. This easing of inflationary pressures has increased the likelihood of base effects pulling down year-on-year consumer inflation rates.

The Labor Department's release of the February consumer price index revealed that inflation was 2.8%, slower than economists' expectations. This data suggests that the Federal Reserve will likely extend its pause on rate cuts when officials gather next week, maintaining the current range of 4.25 to 4.5 percent. The cooling inflation, primarily due to lower airfares, has pulled the annual rate of headline inflation down to 2.8% from 3%, while core inflation dipped to 3.1% from 3.3%. However, the month-on-month change in core inflation remains above the trend needed to bring inflation down to the Fed's 2% year-on-year target.

Despite the encouraging news, there are concerns about the potential impact of tariffs on future inflation. Anecdotal evidence suggests that firms are pre-emptively raising prices ahead of potential tariffs, which could reinvigorate the inflation threat. The Federal Reserve's Beige Book and the NFIB survey reported a significant jump in the proportion of companies raising prices, indicating a risk that core inflation could start to reverse and move higher in the coming months. This uncertainty could squeeze spending power, prompt further weakness in consumer sentiment and spending, and hold back corporate investment and hiring until there is greater clarity on the trading environment.

One factor that could mitigate inflation fears is the potential slowdown in housing costs later in the year. New tenant rents are falling quickly, and if this translates into cooler CPI housing measures, it could go a long way in mitigating inflation fears. Housing accounts for over 40% of the core inflation basket, and if signs of economic weakness emerge, the risks could be skewed towards more rapid Fed rate cuts at the turn of the year and into early 2026. However, for now, the economy is growing and adding jobs, and the potential for higher inflation means that the Fed is unlikely to cut rates again before September.