March CPI’s “Not Bad Enough” — Why Federal Reserve Rate Cuts Still Seem Out of Reach?

After the release of the United States’ March CPI data, the crypto market instead rebounded. Bitcoin briefly rose by more than 1.5% after the data was announced, breaking through the key psychological level of $73,000. Behind this counterintuitive move lies the market’s deep game of macro data.

The data’s own “split” characteristics are the root cause of differentiated market reactions. Overall CPI year-over-year was 3.3% (month-over-month 0.9%), marking the largest single-month increase in nearly four years and far exceeding market expectations. This should have been bearish for risk assets. However, after stripping out volatile food and energy, core CPI year-over-year was 2.6% and month-over-month 0.2%, lower than the market expectation of 0.3%. The relatively mild performance of core CPI provided the Federal Reserve with a reason to “hold steady,” and the market interpreted this as a signal that “inflation is not completely out of control.”

But the alert has not been lifted. Stephen Brown, Chief Economist for North America at Capital Economics, warned that the mild rise in core CPI could have an amplified effect once converted into the core PCE that the Federal Reserve pays more attention to. Preliminary estimates suggest March core PCE year-over-year will rise from 3.0% in February to 3.2%—far above the Federal Reserve’s 2% inflation target. Oulu Sonora, Director of US Economic Research at Fitch Ratings, also warned: “If oil prices stay around $100 per barrel, CPI year-over-year could exceed 4% in the coming months.”

Rate-cut expectations have almost “zeroed out.” The CME FedWatch tool shows a 98.4% probability that the Federal Reserve will keep rates unchanged in April, and a 0% probability of a cumulative 25 basis point cut by June. The probability that the Federal Reserve will keep rates unchanged during the year is above 70%, and the probability of no rate cut in 2027年1月 is also as high as 66%. Brown expects the Federal Reserve will not cut rates this year, and the next rate cut could be in early 2027.

Implications for the crypto market: In a macro environment where high interest rates persist for longer, Bitcoin’s valuation center is unlikely to move up significantly in the short term, and the $70,000–$75,000 range may become the new equilibrium zone. Investors should reduce expectations for a “rate-cut rally” and focus more on geopolitical developments and institutional fund flows. April’s core PCE data (expected to be released in early May) will be the next key window to watch.

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