tl;dr
President Trump’s tariff policies are increasing stagflation risks in the US economy, threatening traditional markets and cryptocurrencies. Recent data shows slowing growth, declining employment, and rising prices, characteristic of stagflation. Policymakers face challenges balancing inflation contr...
President Trump’s tariff policies are contributing to stagflation risks in the US economy, posing threats to both traditional markets and cryptocurrency prices. As the Federal Reserve navigates these challenges, it faces difficult policy decisions. The latest US tariff order appears to be entering its final phase, yet signs of stagflation are surfacing within the American industrial sector.
Recent economic data points to warning signs of stagflation. The Institute for Supply Management reported that the US Services PMI for July dropped to 50.1, falling short of the expected 51.5 and down from June’s 50.8. While still indicating growth, the slowdown is concerning as the figure hovers close to contraction territory. The employment index declined to 46.4, marking a decrease in jobs and the lowest level since March. Meanwhile, the price index surged to 69.9, the highest since October 2022, signaling rapidly rising prices. This blend of contracting employment and soaring prices is the hallmark of stagflation, which creates hardship for workers facing fewer job opportunities and rising living costs.
Policymakers are caught in a bind, forced to choose between curbing unemployment and containing inflation. Central banks typically combat inflation by raising interest rates and promote growth by lowering them, but stagflation makes simultaneously addressing both challenges nearly impossible. This could limit the Federal Reserve’s ability to decisively cut rates in the near future.
Stagflation concerns weighed heavily on US financial markets recently, with the Dow Jones, S&P 500, and Nasdaq all posting losses. Bitcoin also slid by about 1%. Expectations around the Federal Reserve’s policy have shifted after the July jobs report, with markets now anticipating two rate cuts this year instead of three. The probability of rate cuts in September and October stands at 25 basis points each, while the chance of a December cut or hold remains nearly even. If stagflation signals intensify, this balance could tip, impacting crypto prices significantly.
Since the passage of the GENIUS Act on July 18, Bitcoin has become increasingly sensitive to economic indicators, with most altcoins following its trends closely. This new sensitivity underlines the growing interplay between traditional economic conditions and cryptocurrency markets as investors navigate a complex, uncertain financial landscape.