Bitcoin Smashes $99,000 as Inflation Rises to 2.9% in December

By André Beganski

Consumer prices rose as expected in December, a potentially positive sign for risk assets battered by this month’s shifting outlook on Federal Reserve rate cuts.

The Consumer Price Index (CPI), which tracks price changes across a broad range of goods and services, rose 2.9% in the 12 months through December, the Bureau of Labor Statistics said Wednesday.

“Markets had been losing some faith on the disinflation thesis and the idea of Fed rate cuts,” Grayscale’s Head of Research Zach Pandl told Decrypt. “I think this report puts Fed rate cuts back on the table.”

Wednesday’s inflation print was highly anticipated, following data that suggested the U.S. economy was humming along at a stronger-than-expected pace last week. Bitcoin’s price started at $102,000—only to dip below $93,000 after Friday’s blowout jobs reading.

The Bitcoin price immediately jumped following Wednesday’s inflation snapshot, increasing 1.9% and briefly surpassing $99,000 in around 30 minutes. Meanwhile, the price of Ethereum and Solana were also bolstered by the fresh inflation figures, rising to $3,300 and $192, respectively.

Bitcoin has held onto a significant chunk of its post-election gains, but inflation fears have eaten away at them since the cryptocurrency’s price peaked at $108,000 last month.

On a month-to-month basis, consumer prices rose 0.4% in December, slightly outpacing inflation from the previous month. Prior to that, monthly inflation clocked in at 0.2% from July through October.

Inflation has come down significantly in the U.S. from a four-decade high of 9.1% in 2022, but it still remains above the Fed’s 2% target. Despite easing financial conditions last year, Fed policymakers have signaled their quest to tame rising prices may not be over yet.

Policymakers believe that potential shifts in immigration and trade policy under President-elect Donald Trump could present upside risks to inflation, Fed minutes released last week showed. Taking that into consideration, the Fed indicated last month that it would likely cut rates by 25 basis points just two times this year, down from its previous projection of four rate cuts.

Given the U.S. economy’s recent strength, some analysts believe that the Fed’s easing campaign could already be over. Traders penciled in a 53% chance Wednesday that the Fed cuts rates once in 2025, or not even at all, according to CME FedWatch. That was notably down from 70% Tuesday.

Pandl said that Wednesday’s report brought about the lowest core CPI reading since July at 3.2%, coming in below economists’ expectations of 3.3%. Economists view core inflation, which strips out volatile food and energy prices, as a better gauge for underlying trends.

"Before this report, the market was only pricing in one rate cut this year," he said. "The idea that we could have Fed rate hikes this year is not in sight after this report."

Lower interest rates tend to be supportive of risk assets like stock and crypto. They can contribute to inflation through lower borrowing costs and increased spending.

Core PCE, the Fed’s preferred inflation gauge, will be released after the U.S. central bank’s meeting later this month. Amid signs of the economy’s strength, traders are all but certain that the central bank will hold rates steady.

Edited by Stacy Elliott.

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