coindesk.com
A leading economics institute has warned that the costs of everyday stuff in the U.S. could rise faster this year. This clashes with bitcoin BTC$90,110.27 bulls' hopes for disinflation and lower borrowing costs, which could spark a crypto boom.
Consumer prices in the U.S., a key measure of cost of living, could surprise to the upside this year, potentially topping 4%, Peterson Institute for International Economics' President Adam Posen and Peter R. Orszag, CEO and chairman of global financial advisory and asset management firm Lazard, said in their latest research note.
A renewed inflationary upswing would make it harder for the Federal Reserve (Fed) to cut rates rapidly, disappointing risk asset bulls who have come to expect rapid rate cuts in the wake of last year's disinflationary trend.
The official inflation rate, as measured by the consumer price index, declined to 2.7% in 2025, the lowest since 2020. Several investment banks expect the Fed to cut rates by 50-75 basis points this year, while crypto bulls expect a more aggressive move.
Analysts at crypto exchange Bitunix put it best: "The real policy risk at this juncture is not easing too early, but remaining overly cautious after structural disinflation [due to productivity gains from AI] has taken hold—ultimately forcing a more abrupt and disruptive adjustment later. This backdrop explains why markets have begun to price in a 'policy catch-up' scenario in advance."
Explaining the projection
According to Orszag and Posen, several factors, including Trump's tariffs on imports from other countries and a tighter labour market, could outweigh productivity gains, pushing inflation higher.
They explained that importers pass on tariff-driven cost increases to end consumers with a lag. Such delays smooth short-term inflation spikes but eventually amplify consumer prices amid sustained tariffs.
"By mid‑2026, the delayed pass‑through should be substantially complete. This could add 50 basis points to headline inflation by mid-year," they noted.
Deportations could also drive more inflation by creating labor shortages in sectors reliant on migrants, pushing up wages and fueling demand-pull inflation.
Analysts also highlight government spending, which could drive the U.S. fiscal deficit above 7% of GDP, alongside easier financial conditions and unanchored inflation expectations as potential catalysts that could raise the cost of living this year.
"We believe these factors outweigh the downward‑pressure trends that consensus has been fixated on—namely, the ongoing decline in housing inflation and gains in productivity," they noted.
Treasury yields are already rising
This projection for higher inflation lands as global bond yields, including U.S. Treasury yields, are rising, making risky investments like stocks and crypto less attractive.
The 10-year Treasury yield hit a five-month high of 4.31% early this week, tracking the rally in the Japanese government bond yields to record highs.
Bitcoin has dropped nearly 4% to $90,000 this week, according to CoinDesk data.