America faces inflation warning: what this means for Bitcoin

The new research brings bad news for crypto investments. Economic experts predict that inflation in the United States could rise above 4% this year, completely challenging the expectations of Bitcoin optimists. This is exactly what Bitcoin bulls did not hope for—namely, a scenario with higher inflation and higher interest rates.

Why inflation threatens to rise

Researchers from leading institutions have identified three key reasons why inflation in America could accelerate faster than expected this year. First, import tariffs from the Trump era will increase production costs. These cost increases will be passed on to consumers with a delay, becoming fully felt around the summer of 2026. Experts suggest that this could add about 50 basis points to core inflation by mid-2026.

Second, the labor market is shrinking. Possible deportations of migrants could cause shortages in sectors such as food, hospitality, and construction, driving up wages and fueling demand-driven inflation. Third, large budget deficits (above 7% of GDP) and looser financial conditions are exerting additional upward pressure on prices.

These factors outweigh the deflationary forces that economists previously expected—namely, falling housing costs and productivity gains from artificial intelligence. Adam Posen, president of the Peterson Institute for International Economics, and Peter R. Orszag, CEO of Lazard, emphasize in their report that consensus analysts were too optimistic about price cooling this year.

This is bad news for Bitcoin and crypto investments

Higher inflation in America inevitably leads to one thing: the Federal Reserve will become more cautious with interest rate cuts. This is a blow to crypto investments. Bitcoin bulls had counted on aggressive rate cuts after last year’s deflationary trend, when the consumer price index (CPI) fell to 2.7%—the lowest since 2020. That optimism now risks disappearing.

Several investment banks expect the Fed to cut interest rates by 50-75 basis points this year. Crypto optimists hoped for much more aggressive steps. An analysis by crypto analysts sharply formulates the core issue: “The real policy risk now is not to ease too quickly, but to remain too cautious after structural disinflation has set in—which ultimately makes an abrupt adjustment process inevitable later on.”

Market reactions already visible

Signals of higher inflation in America are already affecting financial markets. The yield on 10-year US Treasury bonds reached 4.31% earlier this week—its highest point in five months. Globally, bond yields are rising, making risky investments like stocks and crypto less attractive.

Bitcoin has already felt this firsthand. The price recently dropped to $88.02K (current: -1.03% in 24 hours), after last week’s level of $90,000. This indicates that market participants are taking inflation warnings seriously and adjusting their risk positions.

Federal Reserve in a difficult position

This inflation research places the Federal Reserve in a dilemma. On one hand, the central bank must be cautious with further rate cuts to curb inflation. On the other hand, overly cautious policy risks pushing the economy into a recession. This uncertain policy terrain makes it difficult for investment strategists to accurately estimate future interest rates—precisely what exacerbates volatility in cryptocurrencies.

The coming months will be crucial for US inflation news and market reactions. Until then, crypto investments are likely to remain under pressure.