Inflation rate rises to 2.9% and crypto market turns bullish

The US Consumer Price Index (CPI) report for December, a key indicator of inflation, has just been released by the Bureau of Labor Statistics (BLS). Although the CPI data could boost the U.S. dollar, it is unlikely to lead to immediate monetary policy adjustments from the Federal Reserve.

Let’s go into detail and explore the impact of this on the markets, including cryptocurrencies.

Inflation in line with expectations

December inflation data met forecasts, showing a year-over-year CPI increase of 2.9%, up from 2.7% in November. The core CPI, which excludes volatile food and energy prices, rose 3.2% year over year, slightly below the 3.3% estimate. On a month-on-month (MoM) basis, headline CPI climbed 0.3%, while core CPI rose 0.2%, both in line with projections.

These figures indicate an uptick in inflation, reflecting the Federal Reserve’s continued challenges in balancing growth and price stability.

The crypto market reacts

The crypto market reacted positively to the report, especially as December core CPI rose only 0.2% month-on-month, below the expected 0.3%. Bitcoin (BTC) prices soared $1,000 after the announcement, signaling strong investor sentiment.

Among other cryptocurrencies:

• XRP is trading at $2.85, marking a remarkable 10% rise in 24 hours.
• ETH, GROUND, DOGEAnd ADA are up respectively by 1.80%, 3.03%, 4.56% and 7.90%.

The Fed’s view

Federal Open Market Committee (FOMC) minutes from December revealed officials’ concerns about lingering inflation risks. They pointed to factors such as changes in trade and immigration policies that could complicate efforts to control inflation and potentially strain the U.S. economy.

Despite these challenges, market expectations for a significant rate cut remain muted. According to CME Group’s FedWatch tool, there is a 97% probability that the Fed will keep interest rates at their current levels at the January 29 meeting.

Expert predictions: a Bitcoin breakout on the horizon?

Markus Thielen, head of research at 10x Research, predicts notable market movement ahead of the January 29 FOMC meeting.

“Bitcoin is trading within a narrowing triangle, indicating that a breakout is imminent – ​​likely at the latest at the January 29 FOMC meeting,” he noted on January 14.

Thielen suggests that a drop in inflation could trigger a Bitcoin price surge.

“From a trading perspective, the best approach is to follow the breakout, regardless of direction,” he noted.

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Policy changes under the Trump administration

Anticipated policies from the new Trump administration – including tighter immigration controls, looser fiscal policy and the reimposition of tariffs on imports from China and Europe – could further drive up inflation. These changes could challenge the Federal Reserve’s efforts to manage inflation and could influence future rate decisions.

As the labor market gradually cools and inflation remains high, the Fed is unlikely to implement drastic policy changes. Market participants are forecasting a modest 25 basis point rate cut this year, which would keep the U.S. dollar’s outlook stable for now.

For now, the crypto rally suggests that investors are optimistic that inflation will stabilize – a sentiment that could define the market’s trajectory in the weeks to come.

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