How Will It Impact Bitcoin and Crypto Market?

The U.S. CPI data release is set to drop next week, which would impact the Bitcoin and crypto market. The inflation data notably comes ahead of the January FOMC meeting, potentially influencing the Fed’s rate decision.

U.S. CPI Data To Drop Next Week

The December inflation data drops on January 13, with eyes on the yearly reading for both the CPI and core CPI. This will be the first macro data to drop this year as market participants gauge the state of the U.S. economy and the Fed’s next move.

Notably, the November inflation report came in well below expectations, suggesting that inflation in the U.S. is cooling. CPI fell to 2.7% while the core CPI fell to 2.6%, marking the lowest level since March 2021.

However, New York Fed President John Williams had mentioned that there were likely distortions in the inflation reading due to the U.S. government shutdown. As such, this December report is significant as it will show whether inflation is indeed cooling in the U.S.

The CPI data that drops next week will influence the decision at the January FOMC meeting as the Fed decides whether or not to make a fourth consecutive interest rate cut. Crypto traders are currently betting against another cut, with Polymarket data showing a 91% chance that the Fed leaves interest rates unchanged. Meanwhile, there is a 10% chance that they will lower rates by 25 basis points (bps).

How The Inflation Data Could Impact Bitcoin and The Crypto Market

The CPI data typically sparks volatility in the Bitcoin and crypto markets on the day of its release. A cool inflation reading is a positive for the market, as it would strengthen the case for further cuts from the U.S. Federal Reserve.

Furthermore, it could fuel the ongoing crypto market rally, with the BTC price rising above $90,000 to start the year, up aready 6% year-to-date (YTD). On the other hand, a reading above expectations will be negative for the market, potentially leading to a short-term sell-off.

It is worth noting that the FOMC minutes had shown that most Fed officials expect to make further rate cuts if inflation declines over time. If inflation continues to cool, the Fed is likely to prioritize the labor market, which remains weak.