Risk of U.S. inflation re-acceleration, bearish sentiment on Bitcoin intensifies

The latest analysis from the Peterson Institute for International Economics and Lazard suggests that U.S. inflation this year could exceed 4%, casting a chill on the cryptocurrency market which has been expecting a slight downward trend. If concerns over rising U.S. inflation materialize, expectations for the Federal Reserve to cut interest rates will likely be significantly diminished.

Complex Factors Fueling U.S. Inflation

According to analysts Posen and Orzag, several structural factors are driving U.S. inflation upward, including President Trump’s tariff policies, labor market rigidity, and potential immigrant deportations. Notably, the productivity gains from artificial intelligence and the easing of housing inflation are at levels that can offset downward pressures.

Analysts explained the mechanism behind rising U.S. inflation as follows: delays occur in passing on costs caused by tariffs on imports to consumers. While short-term price pressures ease, these delayed effects are expected to fully manifest by mid-2026, potentially adding 50 basis points to monthly headline inflation.

Labor Shortages and Fiscal Deficits Amplify Inflation

Deportation policies increase labor shortages in industries heavily dependent on immigrant workers, raising wage pressures. This creates a vicious cycle that fuels demand-driven inflation. Simultaneously, increased government spending leading to large fiscal deficits (projected at over 7% of GDP) exerts upward pressure on interest rates.

As accommodative financial conditions and unanchored inflation expectations meet these deficits, the structural foundation for rising inflation in the U.S. is strengthening. Posen and Orzag emphasized, “These factors surpass the market’s existing assumptions of declining housing inflation and productivity improvements,” highlighting the sustainability of the upward trend.

Surge in Treasury Yields Signals Cryptocurrency Weakness

Fears of rate hikes have caused a sharp rise in Treasury yields, drastically reducing the appeal of risk assets like cryptocurrencies. Last week, the 10-year U.S. Treasury yield hit 4.31%, its highest in five months, aligning with the global bond yield increase trend.

The spot market also reflected this sentiment. Bitcoin recently fell nearly 4%, currently hovering around $78,950.

Policy Authorities Face ‘Dilemma of Choice’

Analysts at Biternix, a cryptocurrency exchange, interpreted the current policy risk as intriguing. “The real risk isn’t easing too early, but acting too cautiously even after structural disinflation has taken hold,” they noted. This could lead to abrupt adjustments and confusion in the markets.

U.S. Inflation Outlook and Crypto Bulls’ Concerns

If U.S. inflation exceeds expectations this year, the market’s anticipated rate cuts of 50–75 basis points could be significantly reduced. This directly conflicts with the scenario of asset value appreciation expected from a slight downward trend.

Considering that the Consumer Price Index (CPI) fell to 2.7% in 2025, the lowest in five years, a re-acceleration of inflation this year would represent a shift in direction. As the Fed’s policy options narrow, cryptocurrencies and stock markets are likely to face correction pressures for the time being.