How Will Crypto Market React to Fed’s Next Move?

The US market is eagerly waiting for the second inflation report of 2025. The report is scheduled to be released today. Analysts predict a slight drop in both headline and core inflation. If confirmed, this would be the first time since July 2024 that both inflation indicators have declined. 

US Inflation Expectations for February

In January 2025, the core inflation rate rose from 3.2% to 3.3%. The consensus is that the rate will drop from 3.3% to 3.2% in February. According to TEForecast, the rate is expected to decline sharply from 3.3% to 3.1%.

In January 2025, the US inflation rate increased from 2.9% to 3%. The consensus is that the rate will decline from 3% to 2.9% in February. 

If confirmed, this would be the first time since July 2024 that both inflation indicators have declined. 

In July 2024, the core inflation rate fell from 3.3% to 3.2%, and the US inflation rate dropped from 3% to 2.9%. 

Since September 2024, the US inflation rate has risen consistently. Meanwhile, the core inflation rate increased from 3.2% to 3.3% in September. It remained at the same level for the next two months. In December, it dropped to 3.2% from 3.3%. 

Market Confidence in Inflation Cooling 

Markets are extremely optimistic that inflation will decrease. Kalshi traders predict that the headline CPI will drop to 2.9%. Notably, Kalshi traders have accurately predicted at least 6 of the last 8 CPI numbers. 

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Impact of Trump’s Trade Policies on Inflation 

US President Donald Trump Donald Trump Donald Trump is an American former president politician, businessman, and media personality, who served as the 45th president of the U.S. between 2017 to 2021. Trump earned a Bachelor of science in economics from the University of Pennsylvania in 1968. Trump won the 2016 presidential election as the Republican Party nominee against Democratic Party nominee Hillary Clinton while losing the popular vote. As president, Trump ordered a travel ban on citizens from several Muslim-majority countries, diverted military funding toward building a wall on the U.S.–Mexico border, and implemented a family separation policy. Trump has remained a prominent figure in the Republican Party and is considered a likely candidate for the 2024 presidential election President recently imposed import tariffs on China, Canada, and Mexico. His aggressive trade policies have triggered retaliatory tariffs and pushed the global economy to the brink of a disastrous trade war. 

Today’s inflation report will be the first to reflect inflation under Trump’s tough trade policies.   

Impact on the Cryptocurrency Market

If inflation declines as predicted, it could impact the cryptocurrency market in multiple ways. A cooling inflation rate increases the likelihood of the Federal Reserve easing monetary policy, potentially leading to lower interest rates. This could create a more favourable environment for risk assets like cryptos, driving investor confidence. However, uncertainty surrounding Trump’s trade policies might trigger volatility, as global economic instability often pushes investors toward safe-haven assets like gold. If inflation remains stubbornly high as against the expectation, the Fed may maintain tight monetary policies, putting pressure on the broader financial and crypto markets.