Bitcoin and Ethereum shot higher on Tuesday after new U.S. inflation numbers came in softer than expected, fueling hopes the Fed could cut rates as soon as next month.
The Consumer Price Index (CPI) increased 2.7% in July over the same month last year, which was just less than the 2.8% economists had forecast, according to a report from the U.S. Bureau of Labor Statistics. This softer reading drove optimism across risk markets. Bitcoin traded at $119,156, while Ethereum reached $4,422.58, both reacting sharply to the news.
Besides the annual slowdown, the monthly CPI rose 0.2% in July, down from June’s 0.3% increase. This marked a step toward easing price pressures. However, core CPI, which removes food and energy costs, climbed 3.1% year-over-year. It also rose 0.3% month-over-month, its biggest gain since January, signaling that some inflationary momentum remains.
The release followed a split Federal Reserve meeting last week. Two governors pushed for an immediate rate cut, the first such division since 1993. The Fed has held rates steady for five straight meetings, wary that President Donald Trump’s tariffs could reignite inflation.
Moreover, recent labor data added to pressure on policymakers. A weaker jobs report earlier this month revealed 258,000 fewer jobs than previously reported for May and June. After Tuesday’s inflation report, traders assigned an 82.5% chance of a September rate cut, according to CME FedWatch, only slightly down from Monday’s 86%.
Russell Price, chief economist at Ameriprise Financial, noted that shelter prices — a major CPI component — began moderating in July. “It was a good report today,” he said, pointing to a favorable near-term inflation outlook despite potential tariff-related bumps.
However, economists warn that tariff effects may appear in the fall as companies work through stockpiled goods. Scott Lincicome from the Cato Institute highlighted rising effective tariff rates and shrinking inventories.
Notably, Bitcoin and Ethereum have benefited from cooling inflation, which has fueled expectations of a possible Fed rate cut. However, such confidence might be swiftly dashed by ongoing core inflation and the prospect of further tariffs. Since the Fed’s decision could influence the short-term trajectory of cryptocurrency values.
