Currently, we are witnessing a peak of fear and uncertainty in the market preceding a potential surge. Inflation has begun to rise, coinciding with a period of uncertainty for the United States. The increase in January figures, before fully observing the short-term negative effects of Trump’s tariffs on inflation, raises concerns for 2025. What can we expect for cryptocurrencies?
Inflation on the Rise
Inflation experienced a half-point increase this month, marking the largest rise since August 2023. While a decline to 3.1% was expected for core CPI, it instead rose to 3.3%. All of this occurs in an environment where Trump’s additional tariffs are anticipated to significantly contribute to inflation by increasing various tax rates.
Even the recovery in inflation at the beginning of 2024 had not shown such a drastic monthly increase in the CPI.
Before the inflation figures were released, we noted that American consumers expected a 12-month inflation rate of 4.3%. Consumer expectations reached their highest levels since 2023, indicating a 1.7-point increase in just three months, rivaling the pace seen in February 2020.
2025 Expectations
Post-data, the market now predicts only one interest rate cut in October 2025. Worse, there’s an expectation that rates will remain unchanged by the Fed until December 2026. The Kobeissi Letter emphasizes the significance of tariffs in their assessment of this year.
“The biggest wild card is the impact of tariffs on inflation. Since the trade war began, one-year inflation expectations have surged rapidly, and we may see an average tariff rate exceeding 20%, the highest in 30 years. Inflation is escalating.”
The prevailing view is that inflation will continue to rise this year, increasing pressure on risk markets, including cryptocurrencies. However, conditions can change rapidly, just as they did when the Fed began aggressively cutting rates last year.
