CPI remains stable as expected, Federal Reserve policy shift becomes a key variable for the crypto market

The US December unadjusted CPI year-over-year rate was 2.7%, exactly in line with expectations and the previous value. The inflation data did not surprise the market in any way. Behind this stable data, it reflects a subtle turning point in the current US economy: inflationary pressures have been largely contained, but the sustainability of economic growth and policy directions have become new focal points. For the crypto market, this could mean the beginning of a new phase of competition.

The True Signal of Inflation Data

The stability of CPI data itself is good news, indicating no signs of inflation re-accelerating. However, the significance of this “good news” needs to be understood in a broader context.

Data Stability

The current CPI annual rate has returned to above 2%, approaching the Federal Reserve’s 2% target. This range neither constitutes inflationary pressure nor creates urgency for the Fed to continue large-scale rate cuts. In other words, inflation has gradually faded from the market’s core concerns.

Market Valuation Paradox

Meanwhile, the Buffett Indicator (the ratio of US stock market total market cap to GDP) has hit a record high of 223%-224%, even approaching 230%. This far exceeds the 150% level during the 2000 dot-com bubble and is well above the long-term average of 80%-100%. This indicates that US stock market valuations are at historic highs, and this high valuation is not driven by inflation but supported by other factors—possibly pricing in AI, new policies, or other growth expectations.

Changes in the Policy Environment

Federal Reserve Chair Powell recently emphasized that the Fed’s rate decisions are based on economic assessments rather than political will. This statement may seem routine but carries special implications in the current political climate. It suggests that the Fed is striving to maintain independence while also facing political pressures.

For the crypto market, this means:

• The Fed’s policy trajectory will be more data-driven rather than politically influenced
• However, changes in the political environment (such as the upcoming vote on the CLARITY Act on January 15) are reshaping the regulatory framework
• The crypto market needs to navigate both policy adjustments and economic cycle shifts simultaneously

A New Phase for the Crypto Market

When inflation is no longer the main concern, market focus shifts to other factors:

Policy and Regulation Take Center Stage

Advancements in the CLARITY Act, restructuring of the CFTC Innovation Committee, the US establishing a Bitcoin strategic reserve, and other policy moves may have a greater impact on the crypto market than macroeconomic data itself.

Liquidity and Valuation Battles

The high valuation of US stocks may compete with crypto assets for capital. At the same time, clearer policies could attract more institutional funds into the crypto space.

The Importance of Stablecoins and Regulatory Frameworks

In the context of clearer policies, stablecoins and compliance frameworks have become new focal points of competition. Vitalik’s criticisms of decentralized stablecoins and the development of various stablecoins reflect rapid evolution in this field.

Key Follow-up Focus

While stable CPI data alone is unlikely to cause significant volatility in the crypto market, it sends a signal: the economic environment is relatively stable, and market attention has shifted from “Will inflation continue?” to “How will policies be adjusted?” and “Are valuations too high?”

Summary

The US December CPI met expectations and remained stable, indicating that inflationary pressures are largely under control. This seemingly calm data actually marks a shift in market focus: from inflation concerns to policy directions and market valuations. For the crypto market, policy clarity (such as the progress of the CLARITY Act) and the improvement of regulatory frameworks may be more decisive than macroeconomic data itself. In the short term, market volatility is more likely to stem from policy developments rather than economic data, with close attention needed on the January 15 vote on the CLARITY Act and the Fed’s policy moves.