High Services Inflation Hurts Bitcoin, Sidelines Major Fed Rate Cuts
Latest U.S. inflation figures for August showed the ISM Services Prices Index at 69.2, slightly below expectations but still elevated. This dampened hopes of more aggressive Federal Reserve rate cuts. Bitcoin (BTC) dropped 2.4% to around $109,444, while the top 20 altcoins fell 2.7%. Traders anticipate a 25-basis-point cut at the Fed’s September meeting, rather than the 100 basis points favored by former President Trump. Trump’s plan for a 1% target is now unlikely. Meanwhile, the Treasury’s direct purchase of $2 billion in Treasuries acts as “QE without the Fed,” aiming to reduce government borrowing costs. High services inflation suggests the Fed will stay cautious, pressuring crypto market sentiment.
Bearish
Elevated services inflation indicates the Fed will remain cautious and limit rate cuts, which reduces liquidity and increases borrowing costs. Historically, high inflation readings have triggered sell-offs in risk assets, including Bitcoin. The 2.4% drop in BTC mirrors similar declines when the Fed signaled tighter policy in 2023. In the short term, traders may continue to sell on inflation fears, leading to increased volatility and downward pressure. Over the long term, if the Fed maintains a slower pace of cuts, crypto markets may struggle to rally, prolonging bearish sentiment despite occasional rebounds.