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The latest Consumer Price Index report just dropped, and while 2.73% might seem close to the Fed's 2% target, there's more brewing beneath the surface that could significantly impact Bitcoin and broader markets. What's particularly interesting is how current patterns are starting to echo some concerning historical precedents.
Key Takeaways
- Headline inflation climbed to 2.73%, marking the third consecutive monthly increase since bottoming in September
- Housing inflation continues dominating the CPI calculation, contributing 1.84 of the total 2.73% reading
- Core inflation remains stubbornly stuck at 3%, well above the Fed's target, and has been rising since July 2024
- Current inflation patterns show eerie similarities to the early stages of 1970s inflation cycles, though key differences exist
- Bitcoin continues tracking its 2023 performance almost identically, suggesting macro noise may be less relevant than seasonal patterns
- Fed rate cuts remain highly likely despite rising inflation, with markets pricing in 95% probability for December
- Labor market loosening provides the Fed cover to continue cutting rates despite inflation concerns
- Transportation sector shift from deflationary to inflationary contributed significantly to November's CPI increase
The Numbers Behind November's Inflation Surprise
Here's what's really happening when you dig into the details. The headline number of 2.73% represents a continuation of the upward trend we've been seeing since September, when inflation hit what might have been a local bottom at 2.4%. That trajectory should make anyone who lived through the 1970s a bit nervous.
But here's where it gets interesting - housing inflation is absolutely dominating this story. Out of that 2.73% headline number, housing alone accounts for 1.84%. That's roughly two-thirds of all inflation coming from just one category. The good news? Housing inflation actually dropped slightly from 4.18% to 4.13%, though it's still elevated compared to September's 4.08%.
Transportation tells a completely different story and explains a lot about November's jump. Last month, transportation was deflationary at -0.27%. This month, it swung positive to 0.45%. That single category shift from being a headwind to a tailwind for inflation partially explains why we saw the continued upward movement.
Food and beverage inflation rose modestly from 2.11% to 2.33%, but honestly, that's still right around the Fed's target range. Medical care inflation actually improved, dropping from 3.29% to 3.08%. Recreation ticked up from 1% to 1.48%, while education and communication costs fell from 0.75% to 0.79%.
Why the 1970s Comparison Keeps Me Up at Night
The parallels to the 1970s are becoming harder to ignore, even though I really hope we're not heading down that path. Back then, inflation didn't just steadily decline after peaking - it came in waves. The first wave topped in January 1970, then another massive wave didn't peak until almost five years later in January 1975. Then came the final, devastating wave that peaked in April 1980.
What's particularly unsettling is how inflation behaved in the early stages of that second wave. It slowly started creeping back up, just like we're seeing now. The stock market didn't really care initially - the S&P 500 kept climbing as long as the increases were gradual. It wasn't until inflation really accelerated in the post-election year of 1973 that markets finally woke up and realized they had a serious problem.
That acceleration didn't happen until inflation jumped from 3.8% to 4.8% in a single month. We're nowhere near that kind of sudden spike, but the pattern of slow, steady increases is remarkably similar to what we saw in the early 1970s.
Core inflation presents an even more concerning picture. It's been stuck at around 3% since July 2024 and has actually been rising since then. In the 1970s, core inflation also bottomed out in the summer at similar levels before eventually exploding higher in the post-election year.
Now, there's an important caveat here that most people don't realize. The way inflation is calculated today is completely different from how it was calculated in the 1970s. If you applied the old methodology to our 2022 inflation peak, it would actually be comparable to the devastating peaks we saw in 1974 and 1980. The numbers look "better" today because they changed the math, not because the underlying problem was any less severe.
The Fed's Impossible Balancing Act
Despite inflation trending upward, markets are pricing in a 95% probability that the Fed will cut rates by 25 basis points in December. This might seem counterintuitive, but there's actually solid logic behind it when you look at the labor market.
The unemployment rate has been steadily climbing, and that's giving the Fed cover to continue cutting. This is actually a key difference from the 1970s that gives me some hope we might avoid a repeat performance. Back then, when inflation started accelerating, unemployment was falling. That created wage inflation pressures as the labor market tightened.
Today, we're seeing the opposite dynamic. Inflation is rising while unemployment is also rising, which suggests the labor market is loosening rather than tightening. That should theoretically help bring inflation down over time, assuming other factors don't overwhelm that dynamic.
The Fed is essentially trying to thread the needle here. Cut too aggressively and risk reigniting inflation. Don't cut enough and risk letting unemployment spiral higher. No matter what they do, they'll be blamed if things go wrong. I honestly don't envy their position right now.
Looking at the rate cut cycle, it's mirroring 2019 almost exactly. Back then, we got three consecutive rate cuts followed by a pause. This time, we've had three cuts (though the first was 50 basis points instead of 25), and markets expect a pause in January. The pattern is remarkably similar.
What This Means for Bitcoin Right Now
Here's where things get really interesting from a Bitcoin perspective. Despite all the macro drama and inflation concerns, Bitcoin is essentially following its 2023 playbook almost perfectly. When you overlay the year-to-date returns for 2024 versus 2023, the lines are nearly identical.
Bitcoin's currently trading back above $100K, which makes sense when you consider historical patterns. Even in the 1970s, when inflation started creeping back up, the S&P 500 continued rising until inflation really accelerated. Markets don't typically react to gradual increases - they wait for clear acceleration signals.
The cryptocurrency has been following the same 30-week pattern we saw in 2019. After rate cuts begin, Bitcoin tends to put in lower highs for about six months before breaking out. We saw this exact pattern play out from March through September 2024, followed by the breakout we're seeing now.
What's fascinating is that Bitcoin's 2024 performance is tracking almost exactly with the average of all prior halving years. The current year-to-date return is 2.28x, while the average return for all prior halving years at this point was 2.3x. If that pattern continues through year-end, we could see Bitcoin approach 3x returns, potentially pushing it toward $120K.
The Road Ahead: Scenarios and Probabilities
Looking forward, there are really two main scenarios to watch. The optimistic case is that inflation gradually declines as housing costs continue moderating and labor market loosening helps reduce wage pressures. In this scenario, the Fed successfully threads the needle with modest rate cuts, and Bitcoin continues its typical post-halving performance.
The concerning scenario is that we follow the 1970s playbook more closely. Inflation continues its slow grind higher through early 2025, then accelerates dramatically in the post-election period. That would likely force the Fed to reverse course and start hiking rates again, which would be brutal for all risk assets including Bitcoin.
The key metrics to watch are pretty straightforward. We need to see whether inflation continues this slow grind higher or starts declining again. Housing inflation is crucial since it makes up such a large portion of the index. We also need to monitor whether the labor market continues loosening or if we start seeing employment conditions tighten again.
For now, the market seems more concerned about unemployment than inflation, which explains why rate cut expectations remain high despite rising CPI. But that calculus could change quickly if we start seeing monthly inflation prints that show clear acceleration rather than gradual increases.
The bottom line is that we're in a delicate period where multiple scenarios remain possible, and small changes in the data could have outsized impacts on market sentiment and Fed policy.
Bitcoin continues climbing the wall of worry, just as it has throughout most of its existence. Until we see truly concerning acceleration in either inflation or unemployment, the path of least resistance seems to be higher. But staying alert to changing conditions will be crucial for navigating whatever comes next.
