Hot Inflation Clouds Fed Path, But Crypto Bulls Eye Q4 Liquidity Surge

A hotter-than-expected U.S. wholesale inflation reading has tempered optimism for a September interest-rate cut, but some analysts say the pullback in crypto could be short-lived as liquidity tailwinds build into year-end.

The Producer Price Index rose 0.9% in July, its largest monthly gain in more than three years, with core PPI matching that pace. 

The data prompted traders to scale back bets on imminent Federal Reserve easing, pressuring Bitcoin and Ethereum from recent highs.

Bitcoin is down 4.2% to $118,200 on the day while Ethereum has slipped 3% to 4,570, CoinGecko data shows.

“The recent pullback in crypto prices following a hotter-than-forecast reading on core PPI seems to have shaken broader confidence in a Fed rate cut next month,” Thomas Perfumo, Kraken’s global economist, told Decrypt. 

“Fundamentally, elevated inflation continues to underscore the long-term appeal of crypto assets with fixed or programmatic supply, which are structurally better positioned to preserve, and even grow in value.”

The most prominent example is Bitcoin, which has a fixed supply capped at 21 million coins.

Jamie Coutts, chief crypto analyst at Real Vision, said the macro backdrop is breaking from historical cycles, with inflation unlikely to be “easily tamed” and policymakers exploring unconventional tools such as targeted Treasury issuance or yield-curve control. 

“Short-term, this looks bullish, but without sustained growth, it could end disastrously,” he said.

Coutts expects seasonal weakness in September but sees rising global liquidity, driven by Chinese stimulus measures and a weaker U.S. dollar, supporting a rally in the fourth quarter. 

Bitcoin has fallen in six of the past 10 Septembers, with a median decline of about 4.35%, according to CoinGlass data, but those dips have often set up strong year-end rallies.

Coutts has often noted that shifts in liquidity, whether expanding or contracting, tend to move in step with the rise and fall of risk-asset valuations, as seen during the pandemic-era market rally of 2020–2021.

For now, the PPI shock has reined in aggressive rate-cut bets. But if liquidity flows hold and the dollar continues to soften, crypto’s late-summer lull could give way to a renewed push higher before year-end.