Will inflation return above 4%? The latest research dampens the optimism of Bitcoin bulls over $90,000

January 22 News, the latest research from authoritative institutions is shaking the market’s optimistic expectations of a continued decline in US inflation. Adam Posen, head of the Peterson Institute for International Economics, and Peter Orszag, CEO of Lazard, warned in a joint analysis that the US inflation rate could rise back above 4% this year, directly challenging the bullish bets on a return to an easy monetary environment.

The report points out that the current market generally believes inflation has significantly cooled, with the US Consumer Price Index expected to drop to about 2.7% in 2025, the lowest since 2020. Several Wall Street institutions forecast that the Federal Reserve will initiate a 50 to 75 basis point rate cut cycle in 2026. However, Posen and Orszag believe these expectations may be overly optimistic.

They emphasize that the new round of tariff policies implemented by the Trump administration will gradually transmit higher import costs to end consumer prices. Although this transmission has a lag effect, under a sustained tariff environment, by mid-2026, the related costs will almost be fully reflected in inflation data, potentially adding about 50 basis points to overall inflation.

Additionally, labor shortages caused by deportation policies may also push up wages, further stimulating demand-driven inflation. Coupled with the US government possibly allowing the fiscal deficit to exceed 7% of GDP, along with a loose financial environment and unstable inflation expectations, the upward pressure on living costs has not truly disappeared.

This judgment has already begun to be reflected in financial markets. Recently, global bond yields have risen in unison, with the US 10-year Treasury yield reaching 4.31% on Monday, a five-month high, resonating with record movements in Japanese government bond yields. Rising yields typically weaken the attractiveness of risk assets, including Bitcoin, as funds tend to flow more into the bond market with assured returns.

Against this backdrop, Bitcoin has fallen back to around $90,000 this week, down about 4% from its previous high. If inflation indeed rises again and forces the Federal Reserve to maintain a tightening stance, the crypto market, which relies on a narrative of rate cuts, may face a longer period of testing.