U.S. PPI Data Drives Bitcoin Rally as Fed Rate Cut Expectations Rise

• U.S. inflation data fell to 2.6% and missed expectations by a wide margin. 

• Bitcoin jumped past $113,000 as traders bet on bigger Fed rate cuts. 

• The softer inflation numbers increase the chances of a 50 basis point rate reduction instead of 25.

Bitcoin surged past $113,000 after U.S. inflation data fell significantly below expectations. The Producer Price Index (PPI) fell to 2.6% year-over-year in August, well below the anticipated 3.3% and the previous month’s reading of 3.3%.

The Bureau of Labor Statistics report showed that the monthly PPI declined 0.1%, contrasting sharply with expectations of 0.3% growth. Core PPI, which excludes volatile food and energy prices, dropped to 2.8% annually, missing the 3.5% forecast and the previous 3.7% reading.

Bitcoin responded immediately to the data release, climbing from an intraday low of $110,700 to trade around $113,200. The cryptocurrency broke through the critical $113,000 psychological resistance level as traders interpreted the softer inflation figures as positive for risk assets.

Federal Reserve Policy Implications

The weaker-than-expected inflation data has intensified speculation about the Federal Reserve’s monetary policy. Market participants now see an increased probability of aggressive rate cuts, with some betting on a 50 basis point reduction rather than the standard 25 basis points.

Source: CME FedWatch

CME FedWatch data indicates the odds of a 50 basis point cut have risen above 10% following the PPI release. Kalshi trading data shows a 44% probability for three rate cuts this year, up from previous expectations of two cuts at 39% probability.

Source: Kalshi

Federal Reserve Chair Jerome Powell previously signaled potential rate reductions due to rising downside risks in the labor market. The PPI data reinforces arguments that the Fed should prioritize employment over inflation concerns in upcoming policy decisions.

President Donald Trump responded to the inflation figures by calling for immediate and substantial rate cuts. “Too Late (Powell) must lower the RATE, BIG, right now,” Trump stated following the data release.

Market Outlook and CPI Data

Attention now shifts to tomorrow’s Consumer Price Index (CPI) release, the final major economic indicator before next week’s Federal Reserve meeting. The CPI data will provide insight into inflation trends and could further influence rate cut expectations.

Current macroeconomic conditions show a weakening labor market alongside steady inflation levels. This combination supports the case for monetary easing to stimulate economic growth.

The broader cryptocurrency market has gained momentum alongside Bitcoin’s rally. Lower interest rates typically benefit digital assets by reducing the opportunity cost of holding non-yielding investments and encouraging risk-taking behavior among investors.

As institutional and retail traders position themselves for potential Fed policy changes, trading volumes have increased substantially. Combining softer inflation data and growing rate cut expectations has created a favorable environment for Bitcoin and other risk assets.