August CPI Rises to 2.9% as Fed Faces Rate Cut Dilemma Sept 17

• This represents the highest annual inflation rate recorded since January
• Month-over-month CPI rose 0.4%, which was a sharper increase than many analysts had expected
• Markets are still largely expecting an interest rate cut from the US Federal Reserve in September, although this reading makes that decision more delicate

For August, the US Consumer Price Index (CPI) rose 2.9% year-over-year, up from 2.7% in both July and June. This represents the highest annual inflation rate recorded since January 2025.

Core CPI, which strips out food and energy, held steady at 3.1% annually, showing persistent inflationary pressure in many “nondiscretionary” areas, such as housing, used cars, and similar.

Month-over-month CPI rose 0.4%, which was a sharper increase than many analysts had expected. The primary reason for this is the higher costs for shelter and food.

Despite inflation rising, markets are still largely expecting an interest rate cut from the US Federal Reserve in September, though this reading makes that decision more delicate.

Bond Yields React, Rate Cut Expectations Tested

Both yield curves and Treasury rates showed movement: short-term rates climbed as the 2- vs-10-year spread steepened, reflecting renewed concern inflation may stay sticky. Meanwhile, the 30-year yield barely budged.

On the equity side, reactions were mixed: inflation-sensitive sectors like consumer staples and utilities saw pressure, while rate-sensitive names in tech and growth saw wider swings as traders re-price the Fed’s path.

Related: America’s Labor Weakness: Why U.S. Jobs Data Could Spark a 2025 Crypto Bull Run

What the Inflation Report Means for Crypto

The CPI print has direct spillover into crypto through its impact on liquidity, the dollar, and rate outlooks. 

So far, the crypto industry hasn’t reacted much, but the uptick to 2.9% CPI suggests inflation isn’t cooling as smoothly as markets hoped. If the Federal Reserve hesitates to implement rate cuts, it could prolong the period of tighter liquidity conditions, which typically places downward pressure on speculative assets like cryptocurrencies.

However, crypto has recently shown resilience. For instance, in past cycles, when inflation stayed stubbornly above 2%, Bitcoin in particular benefited as a hedge against fiat debasement.

Short-Term Volatility, Long-Term Hedge

This year, Bitcoin and Ethereum ETFs have already brought tens of billions of dollars in inflows. If inflation remains sticky, we could see renewed institutional inflows into BTC and ETH ETFs as part of a diversification and inflation-hedge strategy.

Still, there are several ways things can develop from here. Nonetheless, the point stands that the short-term volatility may rise for crypto due to Fed policy uncertainty, while the long-term thesis for Bitcoin as a hedge and RWAs as an innovation gets stronger when inflation is sticky.

Related: Chances for a September Rate Cut Surge to 90.4% After Weak Jobs Report