US Inflation Drops Below Expectations – Will the Fed Cut Interest Rates?

In February, U.S. inflation cooled more than expected. The Core Inflation rate dropped from 3.3% to 3.1%, while overall inflation slipped from 3% to 2.8%. Economists had predicted a smaller decline, making this a surprising turn of events.

With inflation easing faster than expected, all eyes are now on the Federal Reserve. Will they finally start cutting interest rates? And if they do, how will it impact the economy and markets – especially Bitcoin? Let’s break it down.

First Dual Inflation Drop Since July 2024

This is the first time since July 2024 that both core and overall inflation have declined together. Back then, core inflation dipped from 3.3% to 3.2%, while overall inflation fell from 3% to 2.9%.

The steady decline in inflation between January and July 2024 led the Federal Reserve to begin cutting interest rates in the second half of the year.

In September 2024, the Fed lowered interest rates from 5.5% to 5%—the first cut since July 2023. More cuts followed in November (from 5% to 4.75%) and December (from 4.75% to 4.5%).

Will More Rate Cuts Happen?

With inflation easing, the chances of another rate cut have increased.

Reports show the probability of a cut in May has jumped from 10% to 31.4%. The likelihood of at least one cut by year-end has risen from 6.5% to 32.5%, while the chances of four cuts this year have surged from 1% to 21%.

Bitcoin Reacts to Market Uncertainty

Bitcoin has seen sharp price swings amid the changing economic outlook. Over the past month, BTC has dropped 15.3%, including a 9.3% dip in just the last week. Yesterday, Bitcoin briefly climbed from $82,914.61 to $83,660.58 before settling at $83,165.61—down 0.59% from its previous close.