How will inflation, strong jobs data and rising Treasury yields shape the Fed's next interest rate decision?

the Federal ReserveThe January 29 meeting looms as markets eagerly await clarity on interest rate policy.

With a 97.3% probability that interest rates will remain constant at 4.25%-4.5%, According to According to market expectations, and with a slim 2.7% chance of a 25 basis point rate cut, the Fed's decision is increasingly linked to incoming data.

Chairman Jerome Powell explained in December interview That future interest rate cuts will depend on economic indicators – a point reinforced by the central bank's gradual shift, with three recent rate cuts of 50 basis points in September, 25 basis points in November, and 25 basis points in December.

For the crypto and Bitcoin market (Bitcoin), which is currently trading at $94,840 and is down nearly 7% in the past week, the Fed's decision could spark renewed interest or more pressure.

Let's explore the key economic data and its potential impact on cryptocurrencies.

Economic Indicators: A Mixed Bag for the Fed

Inflation remains the Fed's arch enemy, but the latest numbers indicate that the battle is far from over. Consumer Price Index for December Climate prediction It rose 2.8% from 2.7% in November, marking the third consecutive monthly increase and the highest since July 2024.

The core CPI - a Fed-favored measure that excludes volatile food and energy prices - is expected to rise 0.2%, keeping the annual rate at 3.3%.

Economists from Wells Fargo warning Inflationary pressures may persist due to fading headwinds to inflation, such as improved supply chains and lower commodity prices.

Meanwhile, the job market continues to defy expectations. Payroll data for December Show 256,000 new jobs, exceeding agreed expectations.

The resilient labor market raises doubts about the Fed's need for further easing, as strong hiring could support consumer spending and economic activity. However, it also complicates the Fed's task of balancing inflation control without causing a sharp slowdown.

Adding to the puzzle are long-term Treasury yields He went up to 4.8%, their highest level since late 2023. Historically, returns near 5% have coincided with stock market corrections, noted Fidelity's Jorian Timmer.

The dollar index also rose to levels not seen since November 2022, pushing the euro into parity with the dollar — a sign of tightening financial conditions that may already be doing some of the Fed's work.

What this means for Bitcoin and the cryptocurrency market

The recent decline in the price of Bitcoin – down 12.5% ​​from its all-time high of $108,268 on December 17, 2024 – points to a broader risk-off sentiment in financial markets.

If the January CPI report confirms flat inflation or resilient growth, the Fed may remain steady or even signal a longer pause before further easing. In addition, rising Treasury yields and a strong dollar often weigh on global assets, including cryptocurrencies, as they increase the relative cost of holding non-dollar-denominated investments.

All of these outcomes could dampen Bitcoin's recovery prospects, as the cryptocurrency market thrives on expectations of easy monetary policy.

The cryptocurrency market's recent behavior shows a high correlation with Wall Street's risk sentiment, with the Nasdaq falling 0.4% during the January 13 session, reflecting caution reflected in Bitcoin price sentiment.