Cost-of-living pressure in the U.S. threatens Bitcoin optimism in 2026

Researchers from two major economic institutions sound the warning: the cost of living in the U.S. could skyrocket this year, completely defying the bullish bets of crypto enthusiasts. According to analysis by Adam Posen, from the Peterson Institute for International Economics, and Peter R. Orszag, CEO of Lazard, inflation in the US could exceed 4% in 2026, contrary to hopes of disinflation that moves the crypto market.

The projection confronts expectations of investors who were confident in a trajectory of falling prices and aggressive reduction of interest rates by the Federal Reserve. If confirmed, higher inflation would prevent the Fed from loosening its monetary policy at the pace the market expects, especially the crypto community that trades Bitcoin and other risk assets.

Inflation may exceed 4%: the scenario that traders did not foresee

Inflation as measured by the consumer price index fell to 2.7% in 2025, reaching the lowest level since 2020. However, researchers now project a resurgence. According to Orszag and Posen, several factors converge to put upward pressure on the cost of living during 2026.

Bitcoin investors had hoped to take advantage of an environment of lower interest rates and controlled inflation. Analysts at the Bitunix exchange summarize the dilemma well: “The real policy risk at this point is not to ease too soon, but to remain overly cautious after structural disinflation has taken hold — ultimately forcing a more abrupt and disruptive adjustment later.”

Tariffs, deportations and the labor market: the factors that drive prices

According to the analysis, Trump-era tariffs occupy the center of the inflationary narrative. Importers pass on cost increases caused by tariffs to end consumers, but with delays. This effect smooths short-term peaks, but amplifies consumer prices in the context of sustained tariffs. “By mid-2026, delayed transmission should be substantially complete. This could add 50 basis points to headline inflation by the middle of the year,” the researchers note.

Deportations of migrants figure as a second important factor. They cause labor shortages in sectors dependent on immigrants, raising wages and fueling demand inflation. Direct result: the cost of living in the US rises not only for products and services, but also for the dynamics of the tighter labor market.

In addition, government spending could push the U.S. fiscal deficit beyond 7% of GDP, while looser financial conditions create additional pressure on prices. “We believe these factors outweigh downward pressure trends — the continued decline in housing inflation and productivity gains,” Posen and Orszag said.

Fed in dilemma: rate cuts versus rising inflation

If inflation does indeed accelerate, the Federal Reserve faces a dilemma. Investors expect 50-75 basis point cuts this year, while the crypto community awaits even more aggressive moves. Resurgent inflation forces the Fed to remain cautious, dashing expectations from both groups.

Several investment banks are already revising projections for rate reductions. The reality of a higher cost of living in the US complexifies the monetary policy narrative that has fueled optimism in recent months.

Cryptocurrencies under pressure: Bitcoin and XRP fall on Treasury yields

The scenario of higher inflation and higher interest rates appears reflected in the markets. U.S. Treasury yields are already rising, reaching 4.31% on 10-year bonds earlier this week — a level not seen in five months. When government bonds offer more attractive returns, risky investments like stocks and cryptocurrencies lose appeal.

Bitcoin has retreated to $84.61K, down 5.80% in the last 24 hours, reflecting the flow of capital to less risky assets. XRP fell similarly, hitting $1.82 with a 4.90% retracement, as the broad risk sell-off on high-beta tokens intensifies. Analysts note that XRP has broken key support around $1.87, with elevated volume erasing gains from the previous week.

Traders now monitor $1.80 as a crucial support level for XRP, while a sustained move above $1.87–$1.90 would signal a possible downward correction.

The double challenge for crypto investors

The prospect of a higher cost of living in the US creates a double adverse scenario for cryptocurrencies: not only does the Fed not cut interest rates as aggressively as expected, but investors seek safety in lower-risk assets. This combination stands in stark contrast to the hopes that fueled crypto enthusiasm in late 2025.

The next few months will test whether Posen and Orszag’s projections come true and how the crypto market responds to a fundamentally different economic environment than traders imagined.