The U.S. PCE price index for April 2026 will be released by the U.S. Bureau of Economic Analysis at 8:30 PM Beijing time on May 28, and is seen by the market as a direct trigger for the current global asset fluctuations: the current mainstream expectation is that the PCE year-on-year will be about 3.8%, significantly higher than March's 3.5%, with core PCE around 3.3%. Several media even claim that 3.8% may be close to a three-year high, while the Federal Reserve's long-term inflation target remains around 2%. In other words, against the backdrop of high energy prices and sticky service prices, inflation is not only "high and stable" but also bets have been placed on the risk of a resurgence. At the same time, CME's "FedWatch" shows that the market has largely agreed that the June 2026 FOMC meeting will keep interest rates unchanged, but the probability of a further rate hike before the end of the year has been re-calibrated, with the interest rate path shifting towards "higher for longer." The tension between a PCE above the 2% target and the expectation of it hitting 3.8%, will quickly reflect in the expected rate hikes, U.S. Treasury yields, and upward pressure on the dollar, thereby directly shaping whether high beta assets like BTC and ETH continue to face pressure or gain new inflation-hedging buying amidst the mismatch of "high inflation + high interest rates."

Inflation Expectations Turning Upward: PCE May Approach Three-Year High

In the Federal Reserve's inflation assessment framework, PCE and its core counterpart, excluding food and energy, is regarded as a more important "anchor" than the CPI, with a long-term target centered around 2%. From this benchmark, the March 2026 PCE year-on-year at around 3.5% is already noticeably above the target range, while several institutions expect the April PCE to rise to about 3.8%, with core PCE around 3.3%. Even without considering whether it is at a "new high," it still indicates a gap of over 1 percentage point from the 2% target, with inflation's retreat slowing sharply as it enters the "final mile."

This upward expectation does not arise from thin air: several media outlets describe the 3.8% expectation as "possibly approaching a near three-year high," emphasizing the risk of inflation "re-accelerating." Research and reports commonly point to two major contexts—first, the strong stickiness of prices in the housing, healthcare, and other service industries means core service PCE is unlikely to decline sharply; second, influenced by geopolitical factors, energy prices are hovering at high levels, limiting the overall PCE's retreat space. Even if some institutions (like Goldman Sachs) judge that the core PCE center may stabilize around 3% and that overall inflation for the year will be below 4%, the market still needs to reprice between "slightly lower center" and "longer time above 2% target." This divergence of views on the medium to long-term inflation center is a key starting point for the renewed hike in interest rate expectations and the discount rate for risk assets.

From Rate Cut Illusions to Rate Hike Pricing: Interest Rate Trajectories Forced to Be Rewritten

Once the inflation center is forced upward, the first thing to be rewritten is the interest rate path. Since the beginning of the year, many traders in the interest rate futures and swap markets had bet on "multiple rate cuts" within this year, viewing the March PCE's 3.5% as the starting point for impending inflation retreat; now, this script is being rewritten in reverse. As the expectation for the April PCE year-on-year rises to 3.8%, the probability distribution provided by CME's "FedWatch" has noticeably shifted: the scenario of "keeping interest rates unchanged" at the June 2026 FOMC meeting has become the baseline, the rate cut path for the year has been compressed, while the scenario of "another rate hike before the end of the year" has reappeared in the pricing curve, with interest rate futures starting to reflect "higher for longer" implied rates on contracts far out in the future.

Under the premise that PCE continues to exceed the 2% target, and core inflation is still considered sticky, this repricing means that the duration during which real interest rates remain elevated is extended, the risk-free interest rate curve rises, and the yield premium of dollar-denominated assets becomes attractive again. Historical experience shows that whenever the market identifies the Fed as hawkish and expects rate hikes or a prolonged high-interest-rate environment, growth stocks, gold, and risk assets like Bitcoin often face simultaneous valuation compression, with rising discount rates reflecting changes in price before profits or on-chain fundamentals. This is also the core macro variable that the current crypto market must hedge against once again.

In a High-Interest World, How Much Discount for BTC and ETH?

In an environment of high nominal rates combined with high real rates, rising discount rates will directly compress the valuation safety margins of "non-cash-generating assets." Both BTC and ETH essentially align more closely with "long duration, high volatility assets": expected returns primarily come from future price appreciation rather than current cash flows, and high-interest rates mean that future stories are discounted more. If, as Goldman Sachs anticipates, core PCE hovers long-term around 3% and the Fed is forced to maintain "higher for longer," the reasonable risk premium of BTC/ETH needs to be reassessed upwards, corresponding to prices trading at discounts compared to lower interest rate periods, with the "story premium" more easily eroded by interest rate pricing.

From trading experience, when CPI/PCE and other inflation data exceed expectations, and rate expectations are revised upward through tools like CME's "FedWatch," global risk assets (including U.S. stocks and crypto assets) typically see increased short-term volatility and price retracements. BTC has maintained a high positive correlation with indices like the Nasdaq over the past few years, making it more likely to be treated as a "high beta tech stock substitute" during data release days; however, some institutions view BTC as "digital gold," hoping to allocate it to hedge against purchasing power risks in times when inflation remains consistently above the 2% target. These two narratives balance against each other in the combination of "high inflation + high interest rates": in the short term, interest rate shocks tend to amplify the high beta sensitivity, while in the medium to long term, it depends on whether core PCE truly stabilizes around a higher inflation trajectory of about 3%, and how funds are priced for BTC and ETH in terms of "tech stock replacements" versus "value store assets."

Where Will Funds Go: Strengthening Dollar and On-Chain Risk Appetite

Under the expectation that "April PCE may rise to about 3.8%, core about 3.3%, stubborn inflation + higher and longer rates," CME tools have begun to factor in the possibility of another rate hike before the end of the year, and the combination of coupon yields and safety of dollar short-term rate assets has significantly increased their attractiveness to global capital. Historically, whenever the Fed is viewed as more hawkish and the interest rate path shifts upward, the dollar index typically strengthens, emerging market equities and various high beta assets face valuation compression and pressure from capital returning to dollar assets, with crypto assets also not being an exception.

In terms of transmission through the chain, funds will first prioritise increasing holdings in U.S. rate assets through Treasury bills and money market instruments, compressing allocation ratios for high volatility assets like BTC/ETH; this change will more be reflected in the middle to long term through the direction of spot Bitcoin ETF applications—if the cost-performance ratio of dollar assets rises, ETF purchases slow down, and redemptions increase, it indicates that institutions are shifting BTC from "long-term allocation" back to "rebalancing chips." At the short-term level, risk appetite manifests through contract leverage and futures basis: if the data strengthens rate hike expectations and the dollar strengthens, contract long leverage often cools, positive basis narrows or even goes negative. Meanwhile, the net issuance and total market value of on-chain dollar-linked assets reflect whether off-chain "dry powder" is still willing to enter the market—with increasing risk aversion, the supply of related assets typically slows or even turns into net absorption, reducing active funds on-chain. Historically, during similar macro "risk-averse" phases, BTC usually remains relatively resilient, while high leverage, large-cap small coins, and narratives like DeFi and chain games tend to experience rapid liquidity withdrawal and significant price retracements, with this style divergence likely to become a core feature of the crypto market in a high-interest rate environment once again.

Three Scenarios for Crypto Dynamics Based on PCE Readings

Based on the mainstream market expectation of a 3.8% threshold, three macro pathways can be roughly delineated: ● If the actual year-on-year significantly exceeds 3.8%, backed by the "near three-year high" narrative, the probability of another rate hike within the year in CME's "FedWatch" is likely to be further raised, strengthening "higher for longer" rate expectations, leading U.S. Treasury yields and the dollar to strengthen, thus placing overall pressure on global risk assets; ● If the results fall roughly within expectations, changes in interest rate path pricing will be limited, and trading focus will shift to core PCE, service item components, and inflation trends in the subsequent months, with asset prices facing more reevaluation within a range; ● If the year-on-year is below 3.8% and shows signs of retreat, it would favor subduing the rate hike expectation and briefly elevating the imagination for rate cuts, easing pressure on the risk-free rate side and providing conditions for the emotional recovery of risk assets.

Corresponding to the market structure: in the "significantly above expectations" hawkish scenario, Bitcoin and Ethereum spot assets often see amplified downward movements the moment data is released, implied volatility for derivatives rises before the announcement and declines post-release, futures basis and perpetual contract funding rates shrink or even turn negative, and high beta altcoins experience relatively larger declines, with spot Bitcoin ETFs more likely to see slowed subscriptions or net redemptions, and on-chain dollar-linked asset supply becoming increasingly conservative, leading to passive deleveraging; in a "meeting expectations" neutral scenario, directional volatility is usually limited, with volatility peaks receding more quickly, ETF and contract data reflecting light positions' speculation and internal rotations among sectors; while in a "below expectations, inflation retreat" moderate scenario, risk appetite rises, BTC/ETH typically see increased trading volume and growth in altcoins, with ETF subscription tendencies warming up, and long leverage on the contract side accumulating again, but the entire chain will still adjust repeatedly based on the subsequent readings of PCE and core PCE regarding "whether to hike rates again" and "how long high rates will be maintained," thus continuously re-evaluating the discount rates and risk premiums of crypto assets.

Interest Rates and On-Chain Signals to Watch After Tonight

The PCE and core PCE for April announced tonight are key gateways to judging "whether inflation will rise again" and "whether rates will be higher and longer": if the year-on-year noticeably stabilizes or crosses the market expectations of 3.8% and 3.3%, it means that inflation stickiness is confirmed, and the 2% target may be hard to reach within the visible timeframe, leading the risk-free rates and dollar asset valuation anchor to shift upward, raising the medium to long-term discount rates and making it difficult to revise down risk premiums for crypto assets; if numbers are below or significantly fall short of expectations, it would help to weaken the narrative of "re-accelerating inflation," leaving space for future rate paths to potentially flatten out. After the data release, three groups of macro variables should be closely observed: first, the direction and magnitude of the deviation of actual PCE and core PCE relative to the 3.8%/3.3% expectations; second, the instantaneous repricing of June and end-of-year rate hike probabilities in CME's "FedWatch"; third, how Fed officials subsequently reference this PCE under the "data-dependent" framework to reinforce or weaken the stance of "higher for longer." Corresponding to the crypto side, attention should also be paid to three chains of funding and leverage: whether the flow of Bitcoin spot ETF subscriptions shows continuous net inflows or turns to net outflows, whether the net issuance and total market value of mainstream dollar-pegged stablecoins are expanding or contracting, and whether the leverage rates, open interest, and liquidation scale of futures and perpetual contracts on leading exchanges are increasing or decreasing. The combination of these macro and on-chain indicators will determine whether the market accepts the new equilibrium of "inflation re-stirring, higher rates for longer," and how much valuation and risk exposure BTC/ETH can bear under this equilibrium.

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