US CPI rises 4% year-over-year, core at 3%, boosting crypto

Softer-than-expected inflation data fueled bets on a Federal Reserve pivot, sending Bitcoin and crypto markets higher.

Softer-than-expected US inflation data bolstered the case for Federal Reserve easing, with headline CPI rising 4% year-over-year in July and core prices advancing 3%, the Bureau of Labor Statistics reported Tuesday.

"The deceleration in headline inflation largely reflects dissipating energy price pressures after the Iran war-related volatility earlier this year," Elizabeth Renter, senior economist at NerdWallet, said. "Still, the report is backward-looking and doesn't capture the recent uptick in gas prices."

The headline reading came in below the 4.3% consensus estimate, while core CPI — which strips out volatile food and energy components — undershot the 3.4% forecast. On a monthly basis, the CPI fell 0.4% from June, more than double the 0.1% decline economists had projected. Energy prices rose 15.7% from a year ago, down sharply from the 23.5% increase in the prior month, as a fragile ceasefire in the Persian Gulf eased oil market volatility. Gas prices climbed 26.7% year-over-year, cooling from the 40.5% surge recorded in May.

The data gives the Federal Open Market Committee room to maintain its wait-and-see posture when it meets later this month, with CME FedWatch data showing an 83% probability of a rate hold — up from roughly 60% before the release. With inflation still running above the Fed's 2% target, any pivot toward easing remains contingent on sustained disinflation in the months ahead.

Bitcoin surged following the release, leading a broad rally across digital assets as traders interpreted the softer data as a green light for risk-on positioning. The move reflects growing expectations that lower borrowing costs will improve liquidity conditions for cryptocurrencies, which have historically benefited from a dovish Fed stance. The broader crypto market followed Bitcoin higher, with major tokens posting gains as open interest across derivatives exchanges climbed.

The labor market is also cooling, with nonfarm payrolls adding just 57,000 jobs in the prior month — well below the consensus estimate — as leisure and hospitality employment dropped sharply. "Only 57,000 jobs added is quite low compared to where expectations were set," Nicole Bachaud, an economist at ZipRecruiter, said. Slowing job growth combined with easing inflation strengthens the narrative that the economy is moving toward a soft landing, though wage growth at 3.5% year-over-year still trails the headline inflation rate, squeezing household budgets.

For the Federal Reserve, the July CPI print provides cover to hold rates steady at the current 5.25% to 5.5% target range when the FOMC meets on July 29-30. Markets are now pricing a higher probability of a rate cut at the September meeting, though Fed officials have stressed they need to see a sustained trend of disinflation before easing policy. The next major data point will be the July nonfarm payrolls report, due Aug. 7, which will offer further clues on whether the economy is cooling enough to warrant rate relief.

This article is for informational purposes only and does not constitute investment advice.