- PCE inflation metrics rise with headline at 2.7%, core at 2.9%, and services at 3.3%.
- Federal Reserve cuts rates despite stalled inflation progress over 16 months.
- Bitcoin faces downside risk if the Fed reverses policy due to inflation resurgence.
The Federal Reserve’s preferred inflation gauge continues to climb despite the central bank’s pivot toward rate cuts. PCE inflation data shows headline inflation at 2.7%, core inflation at 2.9%, and core services inflation at 3.3% as of September 2025, according to analysis from Ecoinometrics.
Data reveals inflation has made no progress toward the Fed’s 2% target for at least 16 months. All three major PCE measures have ticked higher in recent readings, creating a challenging backdrop for monetary policy decisions.
The Fed delivered a 25 basis point rate cut in September 2025, lowering the federal funds rate to the 4.00%-4.25% range. This is the first reduction since December 2024, justified by cooling labor market conditions rather than inflation control.
Policy Reversal
The primary risk for Bitcoin and cryptocurrency markets stems not from rate cuts themselves but from potential policy reversals. If inflation continues surging, the Fed may need to pause or reverse its easing cycle.
Such a shift would cause risk-off sentiment across financial markets quickly. Bitcoin has shown growing correlation with traditional risk assets, which makes it vulnerable to market sell-offs during monetary policy uncertainty.
The cryptocurrency’s performance during the current cycle challenges its narrative as an inflation hedge. Price action has tracked equity markets more closely than traditional safe-haven assets like gold during recent inflationary periods.
December rate cut probability stands at 78.8% for a deeper reduction to the 3.50%-3.75% range. However, this forecast assumes inflation remains contained through year-end.
Policy shift creates market uncertainty
The central bank has explicitly shifted focus from combating inflation to supporting employment growth. Fed projections indicate plans for another 50 basis points in cuts by the end of 2025, despite persistent price pressures.
Markets currently price in a 91.9% probability of another cut at the October 28-29 FOMC meeting, bringing rates to the 3.75%-4.00% range. Only 8.1% of market participants expect rates to remain unchanged, with zero probability assigned to a rate increase.
The Fed maintains PCE inflation projections at 3% for 2025 and core PCE at 3.1% for the year. However, projections for 2026 have been revised upward, acknowledging inflation may persist longer than previously anticipated.
GDP growth forecasts have been revised higher for 2025-2027, suggesting the economy maintains strength despite tighter monetary conditions over the past two years. This resilience complicates the inflation outlook as economic activity typically correlates with price pressures.
Related: https://coinedition.com/could-a-gaza-ceasefire-ignite-the-next-crypto-bull-market/
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