Bitcoin and several popular altcoins saw a decline on Wednesday following the release of hotter-than-expected consumer inflation data from the US.
US Inflation Surged in January
The main driver for the sell-off was a report showing US inflation surged in January. The headline Consumer Price Index (CPI) rose from 0.4% in December to 0.5% in January, translating to a 3% annual increase. Core inflation also advanced to 3.3% annually, higher than the 3.2% forecast. These figures led to a drop in Dow Jones and Nasdaq futures by over 400 points and increased the yield on US Treasury bonds.
Inflation's Impact on Bitcoin and Altcoins
Higher inflation affects Bitcoin and altcoins like Solana and Shiba Inu due to its impact on interest rates and bond markets. The Federal Reserve has a dual mandate of maintaining low inflation and a stable labor market, traditionally cutting rates to stimulate spending when inflation is low. However, current inflation data complicates achieving this balance.
Market Reaction and Future Expectations
Market reactions to the inflation data predict that the Federal Reserve will need to keep interest rates higher for longer than previously expected. Fed Chairman Jerome Powell emphasized that the central bank is in no rush to cut rates due to persistent inflation. Analysts like Mohamed El-Erian suggest that the Fed may even consider raising rates. Historically, cryptocurrencies tend to decline with rate increases and rebound when rates are cut.
The impact of recent US inflation data on the cryptocurrency market underscores the significance of macroeconomic factors in shaping digital asset prices. Fed policy decisions will continue to play a crucial role for investors in the near future.
