Bitcoin and altcoins took a breather on Tuesday, trading in a tight range as markets evaluated fresh U.S. inflation data and recalibrated expectations for Federal Reserve rate cuts.
Following a volatile week in financial markets, the cryptocurrency sector showed signs of consolidation on Tuesday. Bitcoin (BTC) traded around $103,800, while Ethereum (ETH) hovered above $2,520, both posting modest gains of just over 1% and 2.6%, respectively. The total crypto market cap remained steady at $3.3 trillion, signaling a wait-and-see stance from traders.
Inflation Data Comes in Cooler Than Expected
Fresh figures from the Bureau of Labor Statistics showed that U.S. inflation slowed slightly in April. The headline Consumer Price Index (CPI) rose 0.2% month-over-month, up from -0.1% in March, while the annualized CPI dropped to 2.3%, below economists’ forecast of 2.4%.
Meanwhile, the core CPI, which excludes volatile food and energy prices, ticked up 0.2% month-over-month, maintaining an annual rate of 2.8%. While still above the Federal Reserve’s 2.0% target, the figures suggest that inflation is cooling more than anticipated.
Fed Policy: Traders Reassess Rate Cut Timelines
The cooling inflation data follows the Federal Reserve’s decision last week to leave interest rates unchanged, while Chair Jerome Powell warned that tariffs could keep inflation elevated in the near term. Despite this cautious tone, the latest numbers may bolster political pressure, particularly from former President Donald Trump, to begin cutting interest rates to boost the economy and risk assets.
Jim Bianco, a prominent market economist, noted on X (formerly Twitter) that rate cut probabilities have shifted in recent days. The odds of a June cut dropped to just 8%, while July odds fell to 35%, and September odds dropped from 100% to 66%.
However, some optimism remains. Polymarket data shows the probability of a July rate cut rising to 27% on Tuesday, up from 20% on Monday. This suggests a growing belief that rate cuts may still be on the table later in the summer, especially if tariffs are rolled back and inflation continues to ease.
Why Crypto Markets Care
Crypto assets like Bitcoin and Ethereum typically thrive in environments with lower interest rates, which reduce the opportunity cost of holding non-yielding assets. Past bull runs—most notably during the pandemic-era rate cuts have coincided with accommodative monetary policy.
Similarly, crypto prices surged in 2023 when the Fed began hinting at rate cuts amid post-pandemic inflation easing. The current pause in price momentum likely reflects the market’s need for clearer signals from the Fed regarding future cuts.
The crypto bull run may be on temporary pause, but the underlying sentiment remains cautiously optimistic. With inflation softening and potential rate cuts still in play, the stage is set for further gains provided the macroeconomic backdrop continues to cooperate. For now, traders are closely monitoring economic data, central bank signals, and geopolitical developments to guide their next move in the digital asset space.
