Shock surge in inflation destroys hopes for early rate cuts as Bitcoin price sinks

The December Producer Price Index (PPI) showed a surprising 0.5% month-over-month rise, driven primarily by a 0.7% surge in services, which signals persistent inflation and has forced markets to drastically reprice the 2026 rate path. Core PPI rose to 3.3% year-over-year, the highest since July 2025. This news immediately triggered a sell-off, pushing Bitcoin below $82,400 and repricing Fed funds futures to anticipate only 52 basis points of cuts across all of 2026, with the first move now expected in June. The inflation surge is concentrated in services like trade services margins, portfolio management fees, and airline fares, indicating that firms retain pricing power, which is the sticky inflation the Federal Reserve targets. While the Fed monitors Personal Consumption Expenditures (PCE), the hot PPI components mechanically feed into PCE calculations, setting an upward tilt for the February 20th PCE release. The market is now pricing in a 'higher for longer' scenario, with real yields on 10-year TIPS near 1.90% and the dollar index up, creating a significant opportunity cost drag for risk assets like Bitcoin. The base case now involves only two rate cuts starting in June, contrasting with earlier hopes for more aggressive easing.

(Source：CryptoSlate)