Crypto industry experts warned on Tuesday that stronger-than-expected United States inflation could prompt the Federal Reserve to raise interest rates again, a move that would make borrowing more expensive and potentially dampen investment in cryptocurrencies.

According to the Bureau of Labor Statistics, the US Consumer Price Index (CPI) rose 0.4% month over month in October, exceeding economists' forecast of 0.3%, though the increase was slower than September's 0.6% rise. Core inflation, which strips out volatile food and energy prices, climbed 0.3%, above the expected 0.2%.

The Federal Reserve currently holds its benchmark interest rate in a range of 3.75% to 4.00%, having raised it by a quarter of a percentage point in September and left it unchanged in October.

The inflation report landed just hours after Federal Reserve Governor Christopher Waller said in London that another core inflation reading of 0.3% or higher could lead the central bank to consider a larger rate increase at its December meeting.

"In that case, I believe a 50-basis-point hike in the policy rate should be considered at the December meeting," Waller said. "Hiking only 25-basis-points would put our credibility at risk, a risk I am not eager to take."

Markets had already been pricing in a quarter-point Fed hike in December. Tuesday's data and Waller's remarks have since raised the odds that the central bank will tighten monetary policy more aggressively, potentially lifting borrowing costs and squeezing returns for leveraged crypto investors.

Crypto experts warn of higher borrowing costs

Following the CPI release, traders were pricing in slightly more than a quarter point of Fed tightening for December, according to Jeff Anderson, head of US at crypto trading firm STS Digital.

"Following today's CPI release, markets are now pricing approximately 27 basis points of tightening into the December rate curve," Anderson said in comments shared with Cointelegraph. "The prospect of another rate hike is becoming increasingly difficult to ignore."

CME FedWatch data as of 16:28 UTC on Tuesday showed an 88.3% probability of a quarter-point rate hike in December and an 11.7% chance of a half-point increase. The Fed's December meeting now stands as the next major checkpoint, with officials set to weigh the quarter-point increase investors currently expect against the half-point option Waller has put on the table.

The broader crypto market traded lower after the report, with total market capitalization falling 1.6% over the past 24 hours to $2.57 trillion, according to CoinGecko. Bitcoin (BTC) traded near $73,274, down 2% over the past 24 hours, while Ether (ETH) fell nearly 5% to around $2,028 and Solana (SOL) dropped 5.6% to $82.

Analysts also noted that higher interest rates could erode profits on certain crypto investments. Adam Haeems, head of asset management at Tesseract Group, told Cointelegraph that investors who borrow funds to make other investments stand to earn less as borrowing becomes more expensive.

"Carry strategies earn the gap between what their assets yield and what they pay to borrow, so they are squeezed when borrowing costs rise relative to that yield," Haeems said. "Over the past two weeks the rate paid to USDC lenders on Aave's main market ranged from about 3.2% to 7%, while three-month Treasury yields stayed close to 4.2%."

That spread, in turn, could steer where investors deploy their capital, particularly if traditional investments offer better returns with less risk.

Inflation adds to pressure after US midterms

The inflation report also arrived one week after the US midterm elections, in which Democrats won control of both the House and Senate.

"There is also likely to be growing political pressure from a blue Congress to bring inflation under control, potentially reinforcing the case for higher rates," Anderson said. Still, he added that he remained skeptical about whether further rate hikes would address the underlying causes of inflation.

While Congress does not set interest rates, lawmakers can shape economic policy and crypto regulation. The CLARITY Act, a bill intended to establish clearer crypto rules in the United States, has been stalled since January amid disagreements between Democrats and Republicans.

Experts said the shift in congressional power, combined with the prospect of higher borrowing costs, could add a further layer of uncertainty for crypto investors. With the CLARITY Act still stalled and the December rate decision approaching, the paths of both monetary policy and US crypto regulation remain open questions for market participants.