Inflation stickiness exceeds expectations, Wall Street collectively delays the interest rate cut dream: what does it mean for the crypto market

Major Wall Street firms such as Morgan Stanley have recently issued warnings: although U.S. inflation has not reignited, it remains above the Federal Reserve’s 2% target. The pass-through of tariff costs is limited, and housing affordability continues to deteriorate. This suggests that the probability of the Fed cutting interest rates this month is now negligible, and market expectations for rate cuts in 2026 are also being continuously revised downward. The once-mainstream narrative of “rate cut expectations” is now being replaced by the “new normal of high interest rates.”

Why Is Inflation Still So “Sticky”

Allen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, pointed out three key issues:

• Inflation has not reignited but remains above target. This indicates that the downward momentum of inflation is weakening and has entered a “high-level consolidation” phase.
• Limited pass-through of tariff costs. Although Trump’s tariff policies sparked market concerns, the actual cost pressures have not fully transmitted to consumers, which has instead delayed the natural decline of inflation.
• Housing affordability has not improved. Rents and home prices remain high, making this the most sticky part of U.S. inflation and the hardest problem for the Fed to solve.

These three points together suggest that the “hardcore” issues of inflation have not yet been resolved.

Wall Street’s “Rate Cut Expectations” Are Collapsing

This is not just Morgan Stanley’s view. According to the latest information, market participants’ expectations for Fed policy are undergoing a significant shift:

More intuitively, the probability of the Fed maintaining interest rates in January has already reached 95%. This means the market has essentially given up on the “rate cut this month” fantasy.

Cryptocurrency Market Is Under Pressure

This policy expectation shift directly impacts risk assets like Bitcoin. According to the latest data, Bitcoin is currently trading around $90,561, repeatedly encountering resistance near the critical $90,000 support level.

This is no coincidence. The suppressive effect of high interest rates on crypto assets is multi-dimensional:

• The dollar’s attractiveness increases. Higher interest rates make dollar assets (especially U.S. Treasuries) more competitive, diverting risk appetite funds that might otherwise flow into Bitcoin.
• Financing costs rise. For leveraged traders, higher interest rates mean higher borrowing costs, which can reduce their risk tolerance.
• Institutional allocation delays. Although major banks like Morgan Stanley are applying for spot ETFs for Bitcoin and Solana, in a high-rate environment, they may proceed more cautiously with their allocation timelines.

What to Watch Next

Personal opinion: In the short term, the market consensus is that Fed rate cuts are unlikely, and the key uncertainty now shifts to “when will rate cuts happen.” This depends on two factors:

First, inflation data. Next week, the U.S. will release key CPI data, which could determine market expectations for subsequent policy adjustments.

Second, employment data. JPMorgan’s delay in expecting rate cuts is mainly due to “strong U.S. employment figures.” If employment begins to weaken, it could open a window for rate cuts.

Summary

Inflation’s stickiness is stronger than expected, and Wall Street collectively has delayed its rate cut expectations. The Fed maintaining rates in January is now a certainty, and the window for rate cuts in 2026 continues to move further into the future. For the crypto market, this means the suppressive effects of high interest rates will persist, and Bitcoin’s repeated oscillations around $90,000 may continue. Next week’s CPI data and the Fed meeting will be key market turning points to watch closely.