Inflation expectations reverse, the $90,000 Bitcoin bullish interest rate cut dream may be shattered

Optimistic Outlook Suddenly Meets Cold Reality

The market had generally been optimistic that US inflation had largely cooled down. According to the latest data, the US Consumer Price Index in 2025 has fallen to about 2.7%, the lowest since 2020. This trend has led many Wall Street institutions to expect the Federal Reserve to initiate a 50 to 75 basis point rate cut cycle in 2026. It is this rate cut expectation that has been the main driver behind Bitcoin since the end of 2024.

However, on January 22, a joint analysis by Adam Posen, head of the Peterson Institute for International Economics, and Peter Orszag, CEO of Lazard, shattered this optimism. In their latest research, they warned that the US inflation rate could rise back above 4% this year, directly challenging the bullish crypto market’s bet on a return to an easy monetary environment.

The Triple Pressures Behind Inflation Rebound

Posen and Orszag pointed out that the inflation rebound is driven by multiple factors:

The Lagged Effects of Tariff Transmission

The new round of tariff policies implemented by the Trump administration is the most direct factor. Rising import costs will gradually pass through to the prices of end consumer goods. Although this transmission has a lag, under a sustained tariff environment, by mid-2026, related costs will almost fully reflect in inflation data, potentially adding about 50 basis points to overall inflation.

Tight Labor Market Driving Wages Up

Labor shortages caused by deportation policies may also push wages higher, further stimulating demand-driven inflation. This wage increase will feed into a cycle of cost-push inflation.

Loose Fiscal and Financial Environment

The US government may allow the fiscal deficit to exceed 7% of GDP, while the financial environment remains accommodative and inflation expectations are unstable. These factors collectively create upward pressure on living costs.

Markets Are Already Pricing in This Risk

This warning is not unfounded. Financial markets have already begun to react. Global bond yields are rising in unison, with the US 10-year Treasury yield reaching 4.31% this Monday, a five-month high. Rising yields typically weaken the appeal of risk assets, including Bitcoin, as funds tend to flow more into bonds with certain returns.

Against this backdrop, Bitcoin’s performance has shown signs of loosening. According to the latest market data, BTC is currently priced at $90,099.93, falling back to near $90,000 this week, about 4% below its previous high. Looking at a longer cycle, BTC has declined 6.42% over the past 7 days, but has still gained 3.14% over the past 30 days, indicating the market is still digesting this shift in expectations.

The Real Test for the Bullish Narrative

If inflation truly rises again and forces the Fed to maintain a tightening stance, crypto markets relying on rate cut narratives will face a longer test. This is not just a price correction issue but a re-pricing of the market’s view of the monetary policy fundamentals.

Key Variables Moving Forward

Next, attention should focus on several aspects: whether inflation data can confirm this warning, how the Trump administration’s tariff policies will evolve, whether the Fed’s attitude toward inflation rebound will shift, and whether bond yields can stay high. These factors will jointly determine whether the bullish case for Bitcoin’s rate cuts will really be dashed.

Summary

The reversal of inflation expectations marks an important market turning point. Rising from 2.7% to over 4% is not a minor fluctuation; it signifies a fundamental change in the Fed’s policy space. Bitcoin’s recent rally has largely been built on expectations of rate cuts, and this research is challenging that core assumption. Market reactions have already begun, with rising bond yields and Bitcoin’s pullback reflecting this expectation adjustment. The key going forward is whether inflation data can truly rebound and how the Fed will respond. For crypto investors, this is a moment to carefully reassess risk and reward.