Inflation Data Raises Fed Rate Hike Odds, Cryptocurrency Markets May Hit Speed Bump

Grayscale's Head of Research, Zach Pandl, has predicted a temporary setback for cryptocurrency markets due to the recent US inflation data. The August Consumer Price Index revealed that inflation is hotter-than-expected, with headline CPI rising 0.4% month over month and an annual rate remaining at 3.4%. On an annual basis, however, core inflation eased to 2.4%, in line with forecasts and its lowest level since 2021.

Pandl described the combination as a potential 'speed bump' for digital assets. He noted that high-ish core CPI means there's a decent chance of the US Federal Reserve opting for another rate hike, which could be bearish for Bitcoin. However, he doesn't expect a severe cryptocurrency correction and believes any weakness would probably be limited.

Economist Robin Brooks also weighed in on the report, calling it unfavorable for the central bank. Brooks argued that the stronger inflation reading could push policymakers toward another hike, with markets pricing roughly an 85% probability of a hike shortly after the release. Bianco Research founder Jim Bianco similarly noted that traders were assigning about a 90% probability to a rate increase.