Cryptocurrency markets displayed caution on Friday after fresh US data showed consumer price inflation accelerating to its highest level in over three years, while household expectations for future price growth held stubbornly steady. Bitcoin and Ether both edged lower in early trading as traders assessed the implications for Federal Reserve policy.
The Commerce Department reported that US inflation rose to 4.1% in May, its highest since April 2023 and well above the central bank's 2% target. The increase was primarily driven by higher energy costs, with tensions in the Middle East pushing oil and gasoline prices upward. Although fuel prices have eased in recent weeks following a ceasefire, many households continue to face pressure from the rising cost of living.
Compounding the picture, the University of Michigan's final June reading of 1-year consumer inflation expectations held at 4.6%, matching both the preliminary estimate and economist forecasts. The gauge has fluctuated in a narrow 4.5%-4.6% range since March, suggesting that while consumers do not anticipate a rapid acceleration, they also do not foresee a swift return to pre-pandemic price norms. This reading remains well above the 2.3% average seen in 2018-2019.
Sticky inflation expectations are closely monitored by Fed policymakers. The current stability is preferable to a sharp rise, but the persistently elevated level reinforces the view that the fight against inflation is far from over. Market participants now see interest rates staying at restrictive levels for an extended period, a scenario that typically weighs on risk assets like cryptocurrencies.
In immediate reaction, Bitcoin dipped below key support levels while Ether showed similar fragility. Analysts noted that while digital assets have at times decoupled from macro trends, today's data served as a reminder that liquidity conditions—shaped by central bank policy—remain a powerful driver. The next Michigan survey readings will be crucial for detecting any shift in consumer psychology that could further complicate the monetary policy outlook.
