US Inflation Rises to 3.0% Year-on-Year, Setting the Stage for a Potential Bitcoin Melt-Up
The latest data from the Bureau of Labor Statistics reveals that US inflation has risen to 3.0% year-on-year in September, with the overall CPI increasing by 0.3% month-on-month. The core CPI remained steady at 3.0% year-on-year, with a 0.2% month-on-month increase. Notably, gasoline prices saw a significant rise of 4.1% month-on-month, while housing inflation remained relatively stable at around 3.6%. Despite the shutdown backdrop, the Bureau of Labor Statistics managed to release its reports on time, meeting the Social Security cost of living timelines.
Interestingly, interest rate traders have barely changed course after the report, with CME Group’s FedWatch showing that futures still put the probability of a 25 basis point move in the FOMC on October 29 at over 90%. This would raise the target rate from 3.75% to 4.00%, eventually moving towards 3.50% to 3.75%. The Fed Funds Rate Probabilities, as indicated by FedWatch, project the midpoint of the path to be close to 3% by this time next year.
Market Expectations and Interest Rate Projections
A simple probability-weighted average of the distribution is approximately 2.97%, consistent with a decline from current levels to about 3% next year. The table below illustrates the target range probabilities for October 28, 2026, with the highest probabilities in the 2.75% to 3.25% range. Street maps and rule-based estimates, such as those provided by Goldman Sachs, expect three cuts in 2025 and two more in 2026, putting the key rate in a range of 3.00% to 3.25% by the end of 2026.
| Target Range (%, Oct 28, 2026) | Probability |
|---|---|
| 2.50-2.75 | 17.6% |
| 2.75-3.00 | 29.8% |
| 3.00-3.25 | 28.4% |
| 3.25-3.50 | 14.3% |
| Other containers | 9.9% |
The Federal Reserve Bank of Cleveland’s Simple Monetary Policy Rules dashboard shows a median rules path in the upper range of 3 for 2026, depending on the forecast. This serves as a reminder that sticky components of inflation can keep interest rates above the path implied by futures, posing a restrictive 3% end-state risk if core disinflation stalls.
Curve Context and Financial Conditions
Two-year bond yields have been hovering near the mid-3.4% to 3.5% zone, while 10-year bond yields have been steady near 4%. Breakeven inflation for 30-year bonds has been around 2.25%. A strategist survey compiled by Reuters points to a long end holding steady at around 4.1% to 4.2% over the next 6 to 12 months, as the term premium and fiscal supply limit decline. If the back end remains stable while the front end falls, the curve would steepen, affecting the overall fiscal position despite policy cuts.
Implications for Digital Assets and Bitcoin
For digital assets, the connection back to the policy course now runs through both real returns and fund flows. According to CoinShares, global crypto ETPs saw record weekly inflows of $5.95 billion in early October as Bitcoin hit a new high of nearly $126,000. Spot Bitcoin has consolidated around $108,000 to $111,000 in the CPI and FOMC window. These flow impulses are important in transferring macroeconomic impulses to price, as ETF demand now accounts for a large portion of incremental purchases.
In the near term, a 25 basis point cut coupled with a cautious outlook would likely loosen the front end while keeping the 10-year at around 4%. If the dot plot and statement also pave the way for a move in December, the easing on the front end would be clearer, and the dollar could weaken on the sidelines. Looking to October 2026, three paths frame the distribution implied by futures and rules, including a baseline scenario of slow disinflation, a stubborn inflation path, and a growth scare path.
| Path until Oct. 2026 | Key interest rate range | Macro markers | BTC readthrough |
|---|---|---|---|
| Sliding and Grinding Disinflation | 2.75%-3.25% | Core gradually cooling, 10-year value near 4.0-4.2% | Constructively optimistic if real yields fall and ETF inflows continue |
| Sticky inflation | 3.25%-3.75% | Core value close to 3%+, breakevens fixed | Range of fluctuation with a fixed USD and higher real interest rates |
| Fear of growth | 2.25%-2.75% | Unemployment rises, ISM below 50 | Two-stage, risk-off and then liquidity-driven recovery |
Global crosswinds ensure a balanced picture, with the ECB having paused after its cuts in early 2025 and major banks not expecting further rate cuts in 2025. The Bank of England is easing monetary policy more cautiously as UK inflation remains above target. The short-term catalyst is the FOMC decision next week, with futures showing a 25 basis point cut being priced in with conviction and the market-implied endpoint around 3% by October 2026. For more information, visit https://cryptoslate.com/inflation-to-set-up-bitcoin-melt-up-as-rates-to-fall-to-2-75-by-next-october/
