Economic indicators such as inflation and the labor market influence expectations regarding the Federal Reserve's (Fed) future interest rate decisions. Let's explore how this situation might affect the crypto market.
Current Economic Situation
Inflation continues to be the Fed's primary challenge. The Consumer Price Index is forecasted to rise by 2.8% in December after increasing by 2.7% in November, marking the highest rate since July 2024. Core CPI components, excluding food and energy prices, show stable growth at 0.2%. However, the labor market shows unexpectedly high results, with 256,000 new jobs created in December, exceeding economists' forecasts.
Impact on the Crypto Market
Bitcoin's price has decreased by 12.5% from its all-time high of $108,268 on December 17, 2024. If the January CPI report confirms sticky inflation, the Fed may hold steady or even extend the timeline for current rate levels. The crypto market often responds to expectations of monetary easing, which could impact Bitcoin's recovery.
Forecasts and Expectations
The rise in long-term Treasury yields to 4.8% and the strengthening dollar index could complicate the investment market, including cryptocurrencies. These factors increase the relative cost of holding assets denominated in other currencies, which might hinder Bitcoin’s recovery. The crypto market shows high correlation with risk sentiment on Wall Street, reflecting Bitcoin’s price volatility.
The Fed continues to monitor economic indicators, creating uncertainty in the crypto market. Continuing inflation and employment growth complicate forecasts for future rate decisions, which in turn may affect Bitcoin and other cryptocurrencies' recovery.
