The U.S. May Consumer Price Index (CPI) logged the biggest rise in three years, raising concerns that the Federal Reserve (Fed) could keep tightening for longer. Still, the cryptocurrency market narrowed losses and rebounded right after the data, prompting analysis that markets had already priced in much of the bad news.

On June 10 local time, Decrypt reported that the Bureau of Labor Statistics (BLS) announced May CPI rose 4.2 percent from a year earlier. That was the highest annual increase in the past three years. The monthly rise was 0.5 percent, in line with market expectations.

The annual inflation rate increased for a third straight month, and the latest rise was analysed as being heavily influenced by a sharp jump in energy prices. The outlet explained that renewed tensions between the United States and Iran heightened concerns about global crude supply, pushing up energy prices and lifting inflation.

Inflation that is higher than expected or becomes entrenched at elevated levels typically weighs on risk assets, including cryptocurrencies. If inflation stays higher than expected, the Fed is more likely to keep rates elevated for longer or move to additional hikes. Higher rates increase the appeal of cash and Treasuries, while assets such as bitcoin and gold that do not pay interest become relatively less attractive.

Markets were reported to have started pricing in the possibility of at least 1 additional rate hike before year-end. Until recently, investors had leaned toward the possibility of up to 3 rate cuts this year, but the tone is shifting as strong jobs data and rising inflation persist.

Even so, the cryptocurrency market reacted unexpectedly. Bitcoin rose from around $61,000 to about $61,750 for roughly 15 minutes right after the CPI release, and later traded around $62,000. It was up about 0.3 percent over 24 hours. It has not fully recovered to its level before last week’s sharp drop.

Major altcoins also joined the rebound. Ether climbed to $1,650 and solana to $65, while XRP also recouped part of its losses. Ether and solana in particular reversed the declines that had continued after the U.S. jobs data and turned higher.

Some in the market also said the CPI release was not a decisive catalyst that would immediately change the cryptocurrency market’s direction. GiGi Ioffe (이기 이오페), chief investment officer at trading infrastructure platform Theo, said, "A result that merely matches inflation expectations is unlikely to be a strong catalyst for bitcoin."

Ioffe said that with few elements likely to revive expectations of a shift to easier Fed policy, markets for now are likely to be influenced more by investors’ existing positions and supply-demand conditions than by new positive news.

The Fed’s policy environment is also becoming more complex. The Fed has long sought to bring inflation back to its 2 percent target, but recent rising tensions in the Middle East and higher energy prices are seen as offsetting a significant part of the progress made so far. The Fed is currently keeping its target range for the benchmark rate at 3.5 to 3.75 percent.

Market experts see the cryptocurrency market becoming more sensitive to rate expectations, inflation trends, energy prices and geopolitical factors. If inflation resumes an upward trend, concerns about prolonged Fed tightening could re-emerge, raising the likelihood that cryptocurrency volatility will increase with each major economic data release.