Crypto Market Under Pressure as Traders Price Out Fed Rate Cuts Over Inflation Risks

The crypto market is down today and facing renewed pressure as inflation concerns grow due to the U.S.-Iran war, which is sending oil prices to new highs. With inflationary pressure on the U.S. economy mounting, crypto traders are now pricing out Fed rate cuts this year, a development that is bearish for crypto assets.

Crypto Market Down as Traders Price Out Rate Cuts Over Rising Inflation

The total crypto market cap is down over 2% today, declining to $2.36 trillion, according to TradingView data. This market decline is led by Bitcoin, which has crashed below $70,000, dropping to $68,000.

This comes as inflation concerns mount due to the U.S.-Iran conflict, which is about to enter its fourth week. The Iran war is sending oil prices to new highs, thereby putting inflationary pressure on the economy.

During his FOMC press conference yesterday, Fed Chair Jerome Powell warned that the conflict could drive inflation higher in the near term. He also said there won’t be rate cuts if they don’t see progress on inflation.

With the war in Iran now likely to drag on, crypto market participants predict the Fed won’t cut rates this year. Polymarket data show that the odds of zero rate cuts this year have climbed from around 24% yesterday to 35% today.

It is worth noting that the PPI inflation data, which dropped yesterday, signaled that inflation was already trending higher prior to the U.S.-Iran war. PPI rose to 3.4% year-over-year (YoY) in February, with inflation now well above the Fed’s 2% target.

Fed rate cuts are significant for the crypto market, as they typically inject new liquidity into risk assets. Bitcoin rose to new all-time highs (ATHs) last year in anticipation of the rate cuts that the Fed made at the September and October FOMC meetings.

IMF Warns About Rising Oil Prices And Impact On Inflation

According to a Reuters report, the International Monetary Fund (IMF) has warned that a prolonged increase in energy prices could drive inflation higher and lower global economic growth. This came as IMF spokesperson Julie Kozack noted that the U.S.-Iran conflict has already disrupted oil exports, particularly due to the closure of the Strait of Hormuz.

Rising oil prices are directly impacting the crypto market, with prices declining today after Brent crude futures rallied to $119 per barrel. As CoinGape reported, Iran carried out strikes on an Israeli oil refinery in Haifa, just as the U.S.-Iran war entered day 20.

The IMF spokesperson noted that every 10% increase in energy prices, if sustained for about a year, could result in a 0.40% increase in global inflation and a 0.1% to 0.2% drop in output. Crypto traders currently expect the conflict to drag on until at least May. Polymarket data shows a 43% chance of a ceasefire by May 31.