US Producer Inflation Strengthens Case for Another Fed Hike
The US Producer Price Index (PPI) rose 0.4% in August from the previous month, while the annual rate accelerated to 5.4%, slightly above the 5.3% consensus estimate. Energy prices jumped 4.2% during the month, adding to concerns that higher oil prices could keep inflation elevated for longer. Core producer inflation also remained elevated, indicating that underlying price pressures are accelerating from July. This latest data adds another complication for the Federal Reserve just days before its September 15-16 policy meeting.
Bitcoin Selloff Accelerates as Treasury Yields Near 5%
The PPI report triggered an immediate reassessment of the Fed outlook, with traders raising the probability of a 25-basis-point increase at next week's meeting to around 70% following the data, from roughly 62% beforehand. The 10-year Treasury yield climbed above 4.9%, while the 30-year yield reached its highest level since 2007. The sharp rise in Treasury yields suggests investors had been positioned for softer inflation data, but the market reaction became increasingly pronounced through Thursday.
US Treasury Buybacks Fail to Contain Yields
The US Treasury is simultaneously attempting to improve conditions in the long-term government bond market. Treasury Secretary Scott Bessent's department increased the maximum size of its latest buyback of Treasuries maturing in 10 to 20 years to $6 billion, three times the previous $2 billion maximum. The Treasury ultimately accepted approximately $5.2 billion of bonds in Thursday's operation. However, yields continued to rise, suggesting that a larger official buyer has so far been unable to overcome the forces driving investors away from longer-duration government debt.
Market Expectations and Implications for Bitcoin
The combination of higher real and nominal yields and expectations of tighter monetary policy poses a potentially greater risk than the headline PPI itself for Bitcoin. The cryptocurrency has already struggled to regain momentum around $80,000, leaving it vulnerable if investors continue reducing exposure to risk assets. The selloff is particularly notable because the US Treasury is simultaneously attempting to improve conditions in the long-term government bond market.
What to Watch Next: The August Consumer Price Index
The next major catalyst comes Friday with the August Consumer Price Index, the final major inflation report before the Fed's decision. The stakes have increased considerably following PPI. Another stronger-than-expected inflation reading could reinforce expectations for a September hike and potentially push the 10-year Treasury yield through 5%. Oil is adding another complication, with rising energy prices already a major contributor to August producer inflation. Bitcoin therefore enters the CPI release with considerably less macroeconomic support than it had only days ago.
Bitcoin's Response to the Repricing in Bonds and Rates
Bitcoin's move below $77,000 shows that crypto is already responding to the repricing in bonds and rates. A softer CPI reading could ease yields and reduce expectations for immediate Fed tightening. However, if consumer inflation confirms the signal coming from producer prices, the combination of a possible September hike, a 10-year Treasury yield near 5%, and persistent energy-driven inflation could increase the probability that Bitcoin's latest decline develops into a broader selloff rather than another short-lived pullback.
