The cryptocurrency market slid on Friday following the release of the U.S. Federal Reserve’s preferred inflation gauge — the core Personal Consumption Expenditures (PCE) index — sparking renewed investor anxiety over potential interest rate decisions.
Bitcoin (BTC) dipped below the $85,000 mark, while major altcoins Shiba Inu (SHIB), Dogecoin (DOGE), and Cardano (ADA) each saw declines of over 3%. The overall crypto market cap dropped by 2.6% to $2.76 trillion, according to CoinMarketCap.
The February core PCE data, published by the Bureau of Economic Analysis, showed inflation rising to 2.8%, up from 2.7% in January and above economists’ expectations. On a month-over-month basis, the core index increased from 0.3% to 0.4%. Meanwhile, the headline PCE held steady at 2.5% year-over-year and 0.3% month-over-month, underscoring the persistent inflationary pressures in the U.S. economy.
Inflation Concerns Pressure Crypto Prices
The PCE index is closely watched by the Federal Reserve, as it provides a broader view of inflation than the Consumer Price Index (CPI), factoring in both urban and rural spending data. The report has led many analysts to predict that the Fed may delay interest rate cuts, fearing that early loosening could re-ignite inflation.
For the crypto market, the implications are significant. Higher interest rates typically reduce liquidity and risk appetite—two key drivers of cryptocurrency valuations.
Trump’s Tariffs Add to Inflation Fears
Adding fuel to the fire, former President Donald Trump’s recent tariff measures are expected to add further inflationary pressure. Trump has already reimposed 25% tariffs on steel and aluminum and this week extended that to all imported vehicles. While he has pledged to fight inflation, he reportedly admitted that the tariffs could push prices higher. Automakers have pushed back against pressure to absorb costs, warning of price increases.
Market watchers, including prominent economist Mohamed El-Erian, highlighted the significance of the PCE data in shaping the Fed’s next moves. Rising inflation may keep rates elevated longer than the market had hoped, putting additional stress on risk assets like crypto.
What’s Next for Crypto?
While current conditions may seem bearish, a potential recession could flip the narrative. If economic growth slows and unemployment rises, as predicted by Moody’s economist Mark Zandi, the Federal Reserve may be forced to cut rates and resume quantitative easing. In that case, Bitcoin and altcoins could benefit from renewed liquidity and lower yields—conditions that historically favor risk-on assets.
Still, for now, crypto traders remain on edge as macroeconomic pressures continue to shape sentiment. The coming months will be pivotal as markets wait to see whether inflation cools or forces the Fed to extend its higher-for-longer policy stance
