Inflation Rises Slightly But Lower Than Expected Will the Fed Cut Rates? What Does It Mean for Crypto Markets?
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The US Bureau of Labor Statistics released CPI (Consumer Price Index) data for May, with a surprising result: inflation came in at 2.4%, up slightly from the previous month but below the market forecast of 2.5%. The news immediately reignited the debate about the possibility of the Federal Reserve cutting interest rates this year, especially as political pressures continue to mount. Could this be a chance for a crypto market rally?
CPI Data: Slightly Up, But Below Expectations
The latest report showed that the pace of consumer price increases is slowing, with the CPI rising just 0.1% in May a lower monthly increase than April’s 0.2%. Annual inflation is now at its lowest level since February 2021, marking a clear step forward in the Fed’s efforts to control prices.
The core CPI which excludes food and energy remained unchanged at 2.8%, indicating stability in underlying consumer spending.
While this is not a “golden bulletin” for the economy, with the weaker-than-expected data, investors are now starting to re-price in the possibility of the Fed easing monetary policy sooner rather than later.
Trump-Powell tensions and the impact of tariffs
As the presidential campaign heats up, Donald Trump has not hesitated to criticize Fed Chairman Jerome Powell for keeping interest rates too high while other major economies such as Europe have begun to ease.
Tensions escalated when Trump mentioned the possibility of replacing Powell with Scott Bessent, who is currently the US Treasury Secretary and is considered a "Fed successor candidate". However, under current regulations, the President cannot directly fire the Fed Chairman, a move aimed at protecting the independence of the central bank.
However, Trump's strategy is still causing strong political pressure, especially in the context that the tariffs proposed by his administration have been suspended for 90 days, and inflation has not increased as much as feared. This has led some policymakers to consider the possibility of a modest interest rate cut in the second half of 2025.
How will the crypto market react?
Crypto markets, which are sensitive to the Fed’s interest rate policies, reacted mildly to the CPI report. Major coins such as Bitcoin (BTC) and Ethereum (ETH) recorded a 1-2% gain within hours of the data being released.
If the Fed begins to consider cutting interest rates, this could create a new flow of liquidity into risk assets such as cryptocurrencies. Lower interest rates mean cheaper capital, which encourages venture capital investment, and historically, that has always been a boon for the crypto market.
However, investors should remain cautious. The Fed is likely to maintain a “data-driven” stance, and will not act until there is more solid evidence that inflation is being kept under control at its 2% target.
Conclusion: Positive Signals, But Too Early to Celebrate
The lower-than-expected inflation in May is a positive sign for both the traditional economy and the digital asset market. However, a Fed rate cut is far from certain, as Chairman Powell remains cautious and resists political pressure.
In the short term, the CPI data gives crypto investors renewed confidence, but in the long term, all eyes will be on actual action from the Fed in the upcoming meetings.
