Bitcoin (BTC) faced a slight pump early on Tuesday after the July U.S Consumer Price Index (CPI) reading came in cooler than expected. This data, released today, added weight to expectations that the Federal Reserve could cut interest rates in September. 

Besides Bitcoin, which recorded a steady rather than an explosive surge, the bigger story played out in Ethereum. Ether rallied more than 5% to break above $4,400, triggering tens of millions of dollars in liquidations for traders betting against its upward rally. 

July CPI Lands Softer than Expected but Stays Above Fed’s Target

Figures from the US Bureau of Labor Statistics showed annual inflation at 2.7% in July, matching June’s pace and just under the 2.8% forecast. While the number fell short of estimates, it still sits well above the Fed’s 2% goal.

🚨 Just In: July US CPI annual inflation rises 2.7%, below expectations of 2.8%.

Core CPI inflation increased 3.1% Y/Y, compared to forecasts for a gain of 3.0%. pic.twitter.com/m7Nm3oMqnD

— Jesse Cohen (@JesseCohenInv) August 12, 2025

One detail in the report drew attention: items with higher price growth made up 40% of the CPI basket last month, the largest share in 2025 so far. Data also showed a notable portion of goods and services rising faster than 4% annually, indicating stubborn price pressures.

Some economists point to the ongoing tariffs under President Donald Trump as a factor keeping certain costs elevated. The combination of those tariffs and a cooling job market leaves the Fed facing a difficult policy decision next month.

Market Moves: Bitcoin Moves Steady, Ethereum Pops

Following optimism for rate cut in September, Bitcoin inched above $120,000 after the data landed but quickly settled into a narrow range. Traders appeared largely prepared for the numbers, muting the immediate reaction. As of this writing, data by TradingView shows BTC is trading at $120,144. 

On the other hand, Ethereum told a different story. The coin pushed through the $4,400 level within hours, helped by buyers. According to a post by WatcherGuru, the coin topped above $4,500 for the first time since November 2021. 

JUST IN: $4,500 $ETH pic.twitter.com/5OePm2Ewb6

— Watcher.Guru (@WatcherGuru) August 12, 2025

Liquidation data from Coinglass showed roughly $40 million worth of ETH shorts were liquidated in just one hour, creating extra upward momentum.

Overall, the reaction across crypto markets was measured. Many investors are now focused on the Federal Reserve’s September policy meeting as the next possible market-moving event.

Rate Cut Bets Jump After July CPI Release

The softer inflation print has boosted confidence among rate watchers that the Fed will ease borrowing costs soon. The CME FedWatch Tool put the odds of a quarter-point cut in September at nearly 94% after the report, up from about 84% earlier in the day.

Some market analysts are now factoring in multiple cuts before the end of the year, with potential moves in September, October, and December. Political pressure could also play a role, with speculation from analyst Max Crypto that the Trump administration might push for a larger 50-basis-point reduction next month.

So far, the Fed has held rates steady, citing its 2% inflation target as a key reason for caution. However, weaker labor market data released earlier this month may tip the balance in favor of easing monetary policy. 

What This Means for Bitcoin and Ethereum

In the case of Bitcoin, the inflation numbers alone might not be the primary force in the coming weeks. More substantive price effects may come through real policy changes, particularly the beginning of a rate-cut cycle. 

In case the Fed starts cutting rates, the extra liquidity may give a tailwind to both BTC and ETH. Until then, traders will keep track of economic data releases and political news, as the September Fed decision may probably set the trend in the remaining months of the year.