US Inflation Risks Reignite: Economists Warn It Could Exceed 4%, Challenging Bitcoin Bulls' Expectations

The Chairman of the Peterson Institute for International Economics Adam Posen and Lazard’s Global Chairman Peter Orszag released a new research report warning that U.S. inflation could break through 4% this year. This forecast directly conflicts with the widespread market and cryptocurrency investors’ expectations of a downward inflation trend, potentially forcing the Federal Reserve to adopt a more cautious approach to interest rate cuts.

According to these two veteran economists, multiple factors such as tariffs during the Trump era, tightening labor markets, potential immigration deportation policies, large fiscal deficits, and loose financial conditions may offset the positive effects brought by AI-driven productivity gains and declining housing sector inflation.

Currently, Bitcoin is priced at $77.83K, down 7.07% in the past 24 hours. This decline reflects the market’s sensitive reaction to changes in inflation outlook.

Multiple Factors Driving U.S. Inflation Higher

Based on Posen and Orszag’s analysis, several key factors will be the main drivers of rising inflation. First is the lagged effect of tariff policies—importers need time to pass on the increased costs caused by tariffs to end consumers. They note, “By mid-2026, this cost transfer should be largely complete. This could add about 50 basis points to core inflation levels.”

Second is structural changes in the labor market. If the government implements large-scale immigration deportations, industries relying on immigrant labor will face shortages, increasing wage pressures and subsequently stimulating demand-driven inflation.

Additionally, the U.S. fiscal deficit could exceed 7% of GDP, which historically is associated with higher price levels. Looser financial conditions and unpriced inflation expectations could further push prices higher. Posen and Orszag emphasize, “We believe these factors will outweigh the market consensus focus on the downward factors, namely the continued decline in housing sector inflation and AI-driven productivity growth.”

Rising Bond Yields, Crypto Assets Under Pressure

This inflation forecast aligns with the trend of rising global bond yields. The U.S. 10-year Treasury yield reached a five-month high of 4.31% earlier this week, following record highs in Japanese government bond yields.

Rising inflation expectations typically mean higher borrowing costs, which reduce the attractiveness of high-risk assets such as stocks and cryptocurrencies. Investors are more inclined to shift toward relatively safer investments like bonds.

Analysts at crypto exchange Bitunix offered an interesting perspective: “The current policy risk is not about easing too early, but about being overly cautious after experiencing structural inflation declines (thanks to AI productivity improvements), ultimately leading to more abrupt and destructive policy adjustments. This explains why markets have begun to price in scenarios of ‘catch-up’ policies in advance.”

The Fed’s Dilemma and Market Expectations

Official Consumer Price Index data show U.S. inflation has fallen from its 2025 peak to 2.7%—the lowest since 2020. Many investment banks expect the Fed to cut interest rates by 50-75 basis points this year, while some crypto supporters anticipate more aggressive rate cuts.

However, if Posen and Orszag’s prediction proves true—that U.S. inflation indeed rebounds—the Fed will face a difficult choice. On one hand, persistently high inflation will limit room for rate cuts; on the other hand, excessive tightening could trigger a recession risk. This uncertainty has already begun to impact market sentiment, dragging down valuations of risk assets including Bitcoin.

Deep Impact on the Cryptocurrency Market

The shift in inflation outlook poses a direct challenge to Bitcoin investment logic. Many bullish arguments hinge on the Fed cutting rates quickly and liquidity easing, which would boost risk asset prices. But if inflation remains high, this logic will be invalidated.

Higher inflation means rising borrowing costs and increased capital costs, which are unfavorable for any assets requiring ongoing financing. Meanwhile, rising real yields (nominal yields minus inflation) will alter investor allocation decisions, making traditional financial assets more attractive relative to cryptocurrencies.

The current 7.07% daily decline in Bitcoin is a direct reflection of this anticipated shift. The market is digesting the rising inflation risk and the potential tightening of Fed policy as new fundamental factors.