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US CPI data due October 10 could set the tone for markets through the end of the month, with the Federal Reserve’s next policy meeting scheduled for October 28-29 amid a partial government shutdown that has disrupted other economic releases.
The inflation report, expected at 8:30 a.m. ET, marks the first Friday CPI release since January 2018 and arrives as economists forecast a reading that could determine whether the Fed proceeds with an anticipated rate cut.
“The timing of this report could not be more crucial,” — Ellen Zentner, Chief U.S. Economist at Morgan Stanley, said in a televised interview. “With no other indicators available and the Fed in a communication blackout, the US CPI data will heavily influence whether we see a rate cut next week.”
August’s US CPI data showed inflation rising 0.4% month-over-month and 2.9% year-over-year, up slightly from 2.7% in July. Economists forecast that a September reading of 3.1% or higher could push the Fed to delay a widely anticipated rate cut. Conversely, a softer reading may solidify expectations of monetary easing.
Market data from the CME FedWatch Tool currently implies a 75% probability of a 25-basis-point rate cut by year-end. However, analysts say that outcome could shift dramatically depending on Friday’s release.
Traders are pricing in cuts, but the risk is that inflation stays sticky, Michael Brown, Market Analyst at TraderX, told Bloomberg. If the US CPI data surprises to the upside, we could see a sharp reversal in both bond yields and crypto prices.
The Fed’s blackout period, which began this week, means there will be no additional commentary from policymakers ahead of the meeting. That leaves the US CPI data as the primary signal for financial markets to interpret.
Cryptocurrency investors are also preparing for volatility tied to the upcoming US CPI data. The total crypto market capitalization rose to $3.71 trillion this week, buoyed by optimism over potential rate cuts and a weaker dollar. Bitcoin climbed more than 3%, trading near $111,000, while Ethereum recovered to $4,000.
Data from Coinglass showed surging derivatives activity, suggesting traders are positioning for large moves following the report. A developing short squeeze has added further momentum, with analysts highlighting $112,000 as the next resistance level for Bitcoin.
The next level to watch is $112,000. If Bitcoin breaks that, momentum could build further, Ted Pillows, independent market strategist, said in an X (formerly Twitter) post.
Historically, crypto assets react swiftly to macroeconomic data releases. Lower inflation readings often trigger rallies as investors anticipate looser monetary policy, while hotter US CPI data tends to cause sell-offs.
Beyond inflation and interest rates, geopolitics continue to shape investor sentiment. U.S. Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng are expected to meet this week to advance trade discussions ahead of a potential summit between Presidents Donald Trump and Xi Jinping.
Tensions have eased slightly, with gold prices falling from a record $4,375, reflecting improved diplomatic tone. Still, economic fragility in the banking sector highlighted by loan losses at Western Alliance and Zions Bank has raised caution among investors.
Renewed financial stress could drive more capital into Bitcoin and other decentralized assets, Jack Mallers, CEO of Strike, said in a podcast interview. If the US CPI data confirms cooling inflation, that might accelerate Bitcoin’s appeal as a hedge against monetary uncertainty.
With the government partially shut down and the FOMC’s decision imminent, this Friday’s US CPI data release may set the tone for global markets in the final quarter of the year. Whether the Fed proceeds with its anticipated rate cut or delays it will hinge largely on this single data point.
For investors across equities, bonds, and crypto, the coming days could prove decisive. The US CPI data has rarely carried this much weight, and its impact will ripple far beyond Washington.
