Bitcoin, Ethereum Drop as US Reports Inflation Rose to 3% in January

Bitcoin dropped as consumer prices rose more than expected last month, indicating the pace of inflation accelerated in January after running hotter over the previous three months.

The Consumer Price Index (CPI) rose 3% in the 12 months through January, the Bureau of Labor Statistics (BLS) said Wednesday. Economists expected the index, which tracks price changes across a broad range of goods and services, to show a 2.9% annual increase.

In September, annual inflation had cooled to 2.4%, per the BLS.

The Bitcoin price dropped to $94,250 on the back of Wednesday’s CPI print, diving 2.3% in 15 minutes. The price of Ethereum and Solana also fell to $2,600 and $193, respectively, according to CoinGecko data.

Stripping out volatile food and energy prices, so-called core inflation ticked up to to 3.3% in January after showing a 3.2% increase in the 12 months through December. Used to gauge underlying inflation trends, the measure came in slightly hotter economists expected.

Bitcoin’s price boomed as the Federal Reserve’s benchmark interest rate was lowered last year from a 23-year high to a target range of 4.25% to 4.50%. At their latest policy meeting, however, Fed officials decided not to cut, standing by a relatively cautious stance last month.

During the Fed’s December policy meeting, officials signaled that they are monitoring potential shifts in trade and immigration policy as a potential barrier to restoring 2% price stability. 

Speaking yesterday before Congress for the first time since President Donald Trump’s inauguration, Fed Chair Jerome Powell was peppered on Tuesday with questions regarding Trump’s trade war.

“It’s not the Fed’s job to make or comment on tariff policy,” Powell said. “[The Fed’s job] is to try to react to it in a thoughtful, sensible way.”

Powell maintained that the U.S. central bank is prepared to respond if inflation cools or the labor market weakens. But the economy remains in solid shape, he said, and the Fed does “not need to be in a hurry to adjust” interest rates, given last year’s cuts.

Less than two weeks ago, the Commerce Department reported an increase in its Personal Consumption Expenditures (PCE) price index—indicating the Fed’s preferred inflation gauge rose 2.6% annually in December, accelerating from 2.4% the month before.

Risk assets like stocks and crypto tend to thrive amid lower interest rates, which encourage borrowing and spending. At the same time, they can contribute to inflation.

At this point, market participants have grown doubtful that the Fed will cut rates very much at all in 2025. Traders on Wednesday penciled in a more than 50% chance that the Fed delivers just one 25-basis-point rate cut this year, or none at all, according to CME FedWatch.

Still, the Fed won’t conduct its next policy meeting until mid-March. That leaves plenty of time for more data between Wednesday’s inflation print and Fed officials’ next move.

Edited by Stacy Elliott.