The August core CPI figures released on September 10 have completely upended market expectations for interest rate cuts—a trend that had persisted since the Fed’s last rate hike in late 2023.

Inflation and Price Index Developments in August

  • Core CPI rose 0.3% in August, topping analysts’ forecasts of 0.2%. Although headline CPI stood at an annualized 2.4%—the lowest since early 2021—the rise in core CPI remains the primary concern.
  • PPI (Producer Price Index) rose 0.4% in August, marking the largest increase in 3 months.

Oil prices were the core factor driving inflationary pressure. Brent crude reached $106.83 per barrel (up 5.6% on the day, its highest peak since May) after the US destroyed 8 Iranian oil tankers in retaliation for missile attacks on American warships. In just 8 trading sessions, oil prices surged 11.7%, sending ripple effects throughout the economy.

Bank of America (BofA) pointed out that the rise in core CPI was largely driven by transitory factors, such as mobile phone service charges (as AT&T introduced new plans) and airfares. Nevertheless, markets reacted negatively to the hawkish stance of Fed Chair Kevin Warsh and other hawkish officials.

Impact on Financial and Crypto Markets

The 10-year US Treasury yield jumped sharply to 4.92%, its highest level since October 2023. At the same time, the 30-year yield broke above 5.34%, setting a new 5-year high.

This surge stemmed from concerns over lingering inflation rather than signals of economic growth. According to QCP Capital, the risk-free rate approaching 5% amid an absence of nominal growth momentum is the “worst-case scenario for Bitcoin.”

According to Polymarket data, the probability that the Federal Reserve (Fed) will raise interest rates by 25 basis points at its September 15–16 meeting surged from 41.5% (on September 3) to 63.5%. The odds of the Fed hiking rates again in October also jumped from 27% to 42% in a single day. In parallel, the European Central Bank (ECB) officially raised its deposit rate by 25 basis points to 2.5% (effective September 16).

In the cryptocurrency market, Bitcoin recorded a 2.1% decline, pulling back to $77,000. Other major cryptocurrencies were also in the red:

  • Ethereum fell 1.9%, XRP dropped 4.8%, and Solana slipped 3.6%.
  • Broadly, 103 of the top 125 tokens declined, shrinking total crypto market capitalization to $2,640 billion.
  • Capital flows into Bitcoin ETFs also reversed, seeing a net outflow of $120 million on Wednesday.

If upcoming CPI reports continue to run hot, the Fed could carry out multiple consecutive rate hikes, exerting severe downward pressure across risk assets.