Services Inflation Surge Reshapes Rate Expectations
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December's Producer Price Index delivered a significant surprise, with final demand PPI rising 0.5% month-over-month—the sharpest increase since July. The data revealed a concerning divergence: services prices surged 0.7% while goods prices remained flat, indicating persistent inflationary pressures in the service sector that could complicate the Federal Reserve's path toward rate cuts. This development forces markets to reassess the entire 2026 rate trajectory, as services inflation proves more stubborn than anticipated.
The immediate market reaction saw Bitcoin prices decline as expectations for early rate cuts evaporated. This recalibration reflects the crypto market's sensitivity to monetary policy shifts, with higher-for-longer rates potentially dampening risk appetite. However, the structural drivers of cryptocurrency adoption remain intact, suggesting this may represent a tactical adjustment rather than a fundamental shift in long-term prospects.
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