The cryptocurrency market experienced tension on Friday following the release of the Federal Reserve’s favored inflation metric by the U.S.
Bitcoin (BTC) dipped below $85,000, with well-known tokens such as Shiba Inu (SHIB), Dogecoin (DOGE), and Cardano (ADA) seeing declines exceeding 3%. The overall market capitalization of all cryptocurrencies tracked fell by 2.6% to $2.76 trillion.
According to a report from the Bureau of Economic Analysis, the core personal consumption expenditures (PCE) index increased from 2.7% in January to 2.8% in February, surpassing the median forecast. Monthly, the core PCE rose from 0.3% to 0.4%.
The headline PCE remained steady at 2.5% year-over-year and 0.3% month-over-month, indicating that inflation continues to pose a challenge for the U.S. economy, remaining above the Fed’s target of 2.0% in the long run.
Fed policies could impact prices of BTC, SHIB, DOGE, ADA, and other altcoins
The PCE is a key inflation indicator as it differs from the consumer price index by incorporating data from both urban and rural regions.
Analysts anticipate that both the CPI and PCE will rise following Donald Trump’s tariff initiatives. He has already increased tariffs on steel and aluminum by 25%, and recently introduced a 25% tariff on all imported vehicles.
Although Trump has committed to combating inflation, he reportedly admitted that his tariffs would contribute to inflationary pressures. According to the Wall Street Journal, he has privately advised automakers against increasing prices, although they have pushed back, citing elevated operational costs resulting from tariffs.
Increasing inflation could adversely affect Bitcoin and altcoins such as SHIB, DOGE, and ADA. Higher inflation may compel the Fed to maintain elevated interest rates for an extended period, as prematurely cutting rates could exacerbate price pressures.
Another significant economic threat is the possibility of a recession, as predicted by Mark Zandi. Such a scenario could result in increased unemployment and economic hardship in the U.S.
Conversely, a recession might help to alleviate inflation, as consumer spending decreases. This could prompt the Federal Reserve to lower interest rates and reinitiate quantitative easing, while the U.S. government may introduce a stimulus package to revive economic activity.
Such monetary and fiscal measures would likely be positive for Bitcoin and altcoins, as lower interest rates and increased liquidity typically favor riskier assets.