The Federal Reserve is becoming increasingly alert to the risks of stagflation—an unsettling combination of sluggish economic growth and escalating inflation that poses significant challenges for policymakers.
Chair Jerome Powell maintains that the economy is in “good shape” and underscores that the central bank is “in a good position to wait and see” before making any policy shifts. However, subtle modifications in the Fed’s policy statement indicate rising apprehensions about the trajectory of the economy.
In holding its benchmark interest rate steady, the U.S. central bank acknowledged the growing risk of simultaneous rising inflation and unemployment—a condition that broadly encapsulates stagflation. This economic scenario, which last significantly affected the U.S. economy during the 1970s, would restrict the central bank’s ability to foster economic growth without exacerbating inflationary pressures.
“The Fed is worried about stagflation,” stated Zach Pandl, head of research at Grayscale, in a post on X following the Fed’s decision. “We think that outcome would be good for bitcoin.”
Pandl previously argued that increasing tariffs contribute to stagflation, which traditionally undermines conventional assets while benefitting scarce stores of value such as gold. He noted, “Bitcoin was not around for past stagflations, but can be considered a scarce digital commodity and is increasingly viewed as a modern store of value.”
Following the Fed’s announcement and Powell’s remarks, bitcoin traded within a narrow range, momentarily reaching $97,500 earlier Wednesday amid optimism surrounding U.S.-China trade discussions before settling back to $96,500, marking a 1.6% increase over the past 24 hours.
In contrast, the CoinDesk 20 Index (CD20), which serves as a broader measure of the cryptocurrency market, observed a modest uptick of just 0.3%, burdened by declines of 1%-3% in notable cryptocurrencies like XRP, AVAX, UNI, NEAR, and AAVE.
On the equities front, stock markets witnessed a slight recovery from earlier downturns, with the S&P 500 and Nasdaq closing 0.4% and 0.3% higher, respectively.
