Bitunix Analyst: Inflation Undercurrents Are Building — 2026 Rate-Cut Expectations Face a Material Repricing
TL;DR
Inflation risks are rising due to high commodity prices, AI-driven demand, and Fed governance concerns, challenging 2026 rate-cut expectations. Markets may need to reprice cuts if Treasury yields break above 4.3%.
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As of January 16, financial markets appear calm on the surface, but inflation risks are rapidly accumulating beneath asset pricing. Precious metals remain at elevated levels, AI infrastructure investment is driving sustained demand for energy and raw materials, and uncertainty surrounding a potential change in the Federal Reserve chair in May under a Trump administration is prompting markets to reassess whether previously expected two rate cuts remain realistic.
Multiple cost indicators are moving higher in tandem. Gold and silver continue their 2025 uptrends, while industrial metals such as copper and steel have become key bottlenecks for AI and data-center expansion—providing a structural floor for manufacturing, construction, and energy prices. At the same time, geopolitical risks have not receded. U.S.–Iran tensions and ongoing concerns over energy supply are amplifying inflation tail risks. Some institutions have already begun adjusting asset allocations privately, though these shifts are not yet fully reflected in bond and equity prices.
A more structural variable lies in Federal Reserve governance. Markets are increasingly concerned that a new Fed chair perceived as overly dovish could undermine the credibility of inflation control. Several Fed officials have warned explicitly that once central-bank independence is questioned, inflation expectations can become unanchored quickly—forcing rates to remain higher for longer.
Bitunix Analyst View:
The market’s core mismatch lies in a growth narrative that remains intact while inflation risks are still underpriced. A sustained break of the 10-year U.S. Treasury yield above 4.3% would signal that inflation concerns are shifting from expectations into active market repricing, necessitating a downward revision to both the timing and magnitude of future rate cuts. For 2026, the key question is not whether easing occurs, but whether the Fed retains effective control over the inflation narrative.