Markets Rally Against the Odds as Inflation Heats Up

The actual data caught everyone off guard, with every key reading rising. Both core and headline CPI increased MoM, pushing YoY inflation higher as well. Core CPI MoM came in at 0.2%, beating the 0.1% projection, while headline CPI MoM unexpectedly rose by 0.1% instead of the anticipated 0.1% decline. As a result, headline CPI YoY climbed to 3%—up 0.1% rather than holding steady as expected. This is a step in the wrong direction for the U.S. Federal Reserve, which remains committed to its 2% inflation target.

With inflation rising, one would expect prices of risk-on assets to fall—and they did, initially. Within the first 15 minutes of the data release, Bitcoin dropped 2.5% to a low of $94k, with altcoins shedding over 4% in the same period. Traditional markets reacted similarly, as Nasdaq futures fell 1.26% on the news. When the Nasdaq and S&P 500 opened an hour later, they dropped 0.55% and 0.73%, respectively. However, that brief sell-off was all the bears could muster—a sharp 15-minute correction following what would usually be perceived as extremely bearish news.

From that low, Bitcoin has rebounded 4%, now trading higher than it was before the data release. The same can be said for most altcoins, with a sea of green across the board.

This inflation data signals a strengthening economy and now suggests we may only see one rate cut this year—perhaps two if we’re lucky—with the first anticipated in September.

January’s unexpectedly strong U.S. inflation reignited investor fears that a heating economy, combined with looming tariffs, could put the Federal Reserve in a tough position. Hopes for multiple rate cuts are fading. With consumer prices rising more than expected, the Fed is unlikely to rush into easing monetary policy, especially as economic uncertainty grows amid the expected inflationary impact of President Donald Trump’s tariffs on key trade partners.

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