Bitcoin rose sharply on Friday, maintaining its upward momentum even as new data showed that US inflation accelerated in August. The leading cryptocurrency by market capitalization traded near $78,749 after gaining 2% over the past 24 hours. Earlier in the morning in New York, it reached a high of $79,607.
Inflation data and Federal Reserve outlook
The latest consumer price index numbers revealed that core inflation, which excludes volatile food and energy costs, increased by 0.3% month-over-month in August. This figure outpaced analysts’ expectations and intensified speculation that the Federal Reserve could opt for an interest rate hike at its meeting next week.
Ongoing geopolitical tensions, particularly involving Iran, have pushed oil prices higher. The resulting increase in energy costs has spilled over into food and other goods, making it more challenging for policymakers to rein in inflation.
Historically, elevated inflation levels prompt the Federal Reserve to raise interest rates to slow economic activity and contain price growth. Such tightening moves tend to reduce liquidity in markets, often putting downward pressure on risk assets, including cryptocurrencies like Bitcoin.
According to traders using CME’s FedWatch tool, the probability that the Federal Reserve will raise rates next week stands at 85%. The upcoming policy decision will shape borrowing costs and potentially impact the outlook for digital assets and other markets.
Bitcoin has generally responded favorably to lower interest rates, as these conditions boost market liquidity and make non-yielding assets more attractive to investors.
Federal Reserve and policy guidance
Federal Reserve Chairman Kevin Warsh, appointed in January, addressed inflation challenges last month. In his initial policy speech as head of the central bank, Warsh stated that there is “more work to do” in combating persistent price pressures.
The US continues to experience an affordability crisis driven in part by higher energy costs. Rising oil prices have become a major talking point in the lead-up to the midterm elections.
President Donald Trump has repeatedly assured the public that measures will be taken to control price increases. He has also placed public pressure on the Federal Reserve to lower interest rates in an effort to bring relief to consumers.
Treasury Secretary Scott Bessent recently revealed that the Treasury Department will double its long-duration bond buybacks. This move aims to increase demand for non-yielding assets such as Bitcoin and gold.
In August, Bitcoin experienced its strongest rally in several years, supported by positive regulatory developments and initiatives from the US Treasury. The cryptocurrency also benefited after President Trump encouraged lawmakers to pass the Clarity Act, a key piece of crypto legislation aimed at providing clearer regulations for the digital asset industry.
The Federal Reserve faces persistent challenges controlling inflation, as energy and consumer prices remain elevated. Despite these obstacles, Bitcoin has surged above $78,700, with market participants closely watching the upcoming Fed policy decision.
Mini dictionary: CME FedWatch Tool, a platform by CME Group that monitors market expectations of US Federal Reserve interest rate decisions based on futures pricing.
