Crypto Markets Rally as Inflation Data Fuels Rate Cut Expectations

Cryptocurrency markets climbed into Friday, with major digital assets posting solid gains after mixed U.S. economic data reinforced expectations for Federal Reserve rate cuts, creating a favorable backdrop for risk assets.

Bitcoin is up 1.29% to $115,329.58, briefly touching $116,000 overnight in its latest push. The world's largest cryptocurrency has benefited from growing institutional adoption and expectations for looser monetary policy.

Ethereum outpaced Bitcoin with a 2.94% gain to $4,505.37, while Solana emerged as the day's standout performer, surging 4.19% to $232.65. Solana's rally received additional momentum from news that Forward Industries closed a $1.65 billion PIPE investment co-sponsored by Multicoin Capital, Jump Trading, and Galaxy Digital to pivot toward a Solana-focused digital asset treasury strategy.

The total cryptocurrency market capitalization rose 1.64% to $4.01 trillion, according to Coinmarketcap data, reflecting broad-based strength across digital assets as investors positioned for potential monetary easing.

Economic Data Mixed

Thursday's economic data painted a mixed picture that ultimately supported rate cut expectations. While August consumer prices rose 0.4% month-over-month, exceeding the 0.3% estimate, core inflation met expectations at 0.3%. More significantly, weekly jobless claims spiked to 263,000, well above the 235,000 estimate and marking the highest level since October 2021.

The labor market softening provided the Federal Reserve with additional justification for policy accommodation, with traders now fully pricing in three rate cuts by year-end. According to Bloomberg Intelligence chief US rates strategist Ira Jersey, "The core was as expected but CPI beat on the headline number, and we think that keeps a 25-bp cut next week locked in and doesn't preclude further cuts in October and December."

Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like Bitcoin while encouraging risk-taking behavior among investors.

Record Highs

Traditional equity markets also responded positively to the rate cut narrative. The S&P 500 gained 0.85% to close at a record 6,587.47, while the Nasdaq Composite rose 0.72% to 22,043.07. The Dow Jones Industrial Average posted the largest gain, jumping 617 points or 1.36% to 46,108.00.

With the Federal Reserve meeting scheduled for next week, crypto markets appear positioned for continued strength if policymakers deliver the anticipated rate cuts. However, any hawkish surprises or concerns about persistent inflation could quickly reverse recent gains, particularly given the elevated valuations across risk assets.