Inflation Rises and How This Impacts Markets

We are six days away from the big dance. That’s right – the latest round of US Federal interest rate at policy statements will be released.  

If you are wondering, yes, I do find Fed meetings as exciting as State of Origin round two. Queenslander! 

Digital asset markets have continued to slide with Bitcoin closing this Monday past with a weekly loss of -14%, and Ethereum -15%. This trend hasn’t changed much, with the market broadly still down since Monday despite an uptick today.  

But is there any relief coming? Could macro forces shift the market’s sentiment, or just reinforce that we are going through a 2022 style rate hike cycle? 

As we’ve been following along in recent Squawks, this will be a very important meeting – so let’s dig into what the market thinks, and what it could mean for digital assets in the weeks ahead.  

CPI rises, what could this mean for rate hikes? 

Let’s talk inflation, and what it means.  

Core consumer price index (CPI), refers to the change in price of goods and services purchased by consumers, excluding food and energy. These are taken out as food and energy prices account for large fraction of the regular CPI data print and are typically more volatile than other measures. So, the Federal Open Markets Committee (FOMC) pays closer attention to this core data, as it better represents the rise and fall of inflation outside these two dominating drivers.  

The chart above tells us all what we’ve been hearing since 2022; due to a range of economic decisions during the 2019-2021 era, the underlying cost of everything has risen for consumers. This is partly due to stimulus and easing conditions while the world went through a very transformative phase of history.  

The most recent Core CPI reading came in at the highest point for 2026, suggesting that inflation is on the move. That said, the figures were at or below previous forecasts, giving the market a bit of a softer landing amid the volatility. 

The solution for rising inflation from policy makers is often to apply pressures on spending. One mechanism to achieve that is increasing interest rates.  

And that’s where we look next, as the prints for core inflation have been steadily rising in 2026. What impact has that had on the market’s perception of whether their spending is going to become tighter, freer, or stay the same?   

Chart of the week: What the market thinks will happen with interest rates  

The chart below maps out exactly this dance.  

Right now, the market’s enthusiasm in a rate cut for 2026 is curbing. We could interpret this sentiment as a driver for the current momentum we’ve seen in the crypto market to the downside. The market appears less optimistic for risk. 

From March to May, there was confidence that at least one 25 basis-point cut (red line) was coming in 2026, but now that view is eroding.  

In fact, the market’s view of a rate rise in 2026 (green line) are the highest that they’ve been in a while.  

So, when we bring it all together, the market has falling confidence in both rates reducing (or staying the same in 2026), all the while inflation is the highest it’s been in 2026.  

Now throw in the mix a new Federal Reserve chair, Kevin Warsh, who is for the first time going to publicise his agenda, and we’ve got a real interesting setup for markets. If his address reinforces the US needs to do more to control inflation by raising rates, the market’s negative view right now likely intensifies.  

The opposite of this could be true as well. Big Kev could come out saying something to the effect of ‘we’re going to cut and grow our way out of this’. This would be more in the surprise camp for the market as we can see the idea of a rate cut in 2026 is drying up in the market’s eye, but could push some appetite back into risk.   

Hope you all found this helpful and clear to follow. I’ll be back again next week, see you then.