The Loose Policy is Driving Inflation Risk for Bitcoin and Risk Assets in 2026

The seemingly stable decline in inflation over the past year may no longer continue, according to a new analysis from two prominent economists. Adam Posen of the Peterson Institute for International Economics and Peter R. Orszag of Lazard share a newer outlook that consumer prices in the United States could reach over 4% this year. This scenario directly contradicts the expectations of Bitcoin bulls who rely on continued price stability from disinflation and lower Federal Reserve (Fed) borrowing costs.

The new alarm stems from multiple factors that could outweigh the positive effects of artificial intelligence (AI) and the natural decrease in housing-related costs. These include Trump tariffs, tighter labor market conditions, and accommodative monetary policies that could raise the cost of living this year.

Economists Warn of Elevated Inflation from Tariffs and Labor Market Dynamics

Posen and Orszag’s identification of higher inflation is based on concrete economic mechanisms. First, tariffs directly increase import costs, which are typically passed on by importers to consumers. Although in the initial phase the impact may be limited due to delayed price adjustments, by mid-2026, these adjustments should be nearly complete.

“At that point, tariff-driven cost pass-through could add 50 basis points to headline inflation,” their assessment states. This is a serious concern for asset managers relying on lower rates.

The second factor is the potential mass deportation of migrants. While politically controversial, the economic impact is clear: labor shortages in sectors dependent on migrant workers will push wages higher, directly serving as an inflation driver through demand-side pressures.

Loose Monetary and Fiscal Conditions Increase Inflation Risk

The biggest concern is the combination of loose policies on both monetary and fiscal fronts. The US government deficit is expected to reach or exceed 7% of GDP, a significantly elevated level indicating greater spending commitments compared to last year. This includes a loose monetary policy environment supporting higher credit availability.

“The combined effect of expansive fiscal spending and lenient monetary conditions provides fertile ground for persistent inflation even in the presence of structural productivity improvements,” the analysis states. This scenario is particularly challenging for crypto investors who have positioned their portfolios based on disinflation assumptions.

Rising Treasury Yields Increase Headwinds for Risk Assets

Inflation concerns are boosting global bond markets. The US 10-year Treasury yield has reached 4.31% this week, the highest in five months. Such increases make risk assets like stocks and cryptocurrencies less attractive to investors seeking safer returns.

Bitcoin itself showed weakness in the market, dropping over 4% to $78,740 last week. This price action reflects greater uncertainty about the future rate path of the Fed. If inflation is indeed higher than expected, the Fed is constrained from cutting rates quickly and aggressively as crypto market participants had anticipated.

The Policy Catch-Up Scenario: The Real Market Risk

Analysts at Bitunix highlight an intriguing dynamic in current market positioning. The real policy risk now is not premature rate cuts, but the possibility that the Fed remains cautious for too long—even as structural disinflation forces (driven by AI productivity gains) become evident. If this occurs, it could lead to sudden and disruptive policy normalization.

“Markets have started pricing in a ‘policy catch-up’ scenario because it is more probable now than before,” the narrative explains. This accounts for the volatility seen in risk assets and the hesitation among crypto bulls to commit to more aggressive upside positions.

Productivity Gains Are Not Sufficient to Offset

The counterargument built by disinflation advocates is based on continued productivity improvements from AI and technological advancements, as well as the natural drag on housing costs. This thesis is valid in isolation, but the studies by Posen and Orszag show that loose policies are strong enough to surpass supply-side positive effects.

“We believe that fiscal and monetary accommodation will be even larger than the positive supply-side developments expected by market consensus,” they say. This assessment forms the basis of their elevated inflation projection.

Implications for the Crypto Market and Investors

For Bitcoin holders and other risk asset investors, the implications are significant. The scenario where inflation is higher and the Fed remains cautious is unfavorable for cryptocurrencies. The historical relationship shows that higher real rates (nominal rates minus inflation) create headwinds for non-yielding assets like crypto.

The combination of elevated inflation expectations, rising Treasury yields, and the possibility of prolonged Fed caution creates a challenging environment. Bitcoin bulls expecting price appreciation based on the disinflation playbook should recalibrate their assumptions.

The market is currently pricing in this evolving landscape, and crypto price action reflects this macroeconomic uncertainty. Risk asset buyers should be aware of the elevated inflation risks and their implications for the future path of monetary policy.