Stagflation: Fed's Worst Nightmare Looms on Horizon.
Stagflation, a combination of economic stagnation and high inflation, has long been a nightmare for central bankers. Fed Chair Jerome Powell recently emphasized in meetings that while the economy remains solid, stagflation risks are intensifying.
According to the latest economic data, the US unemployment rate is expected to rise to 4.5%, GDP growth to slow to 1.4%, and inflation to rebound to 3%. These indicators show that Trump's tariff policies and Middle East geopolitical conflicts are driving up prices while suppressing economic growth.
In this environment, the Fed's interest rate decisions are in a dilemma: cutting rates to stimulate employment may exacerbate inflation, while maintaining high rates will further drag on the economy. Historical experience shows that the stagflation of the 1970s led to Fed policy missteps, causing long-term recession.
For the cryptocurrency market, stagflation signals often trigger risk-averse sentiments. Investors may turn to BTC and other digital assets as hedges, but short-term market volatility will increase. Mainstream coins like ETH and $SOL may also be affected by macroeconomic pressures, with prices under pressure.
However, not all assets will be negatively impacted. Emerging DeFi projects like $AAVE and $UNI may benefit from rising lending demand, but overall, the market needs to be vigilant about the Fed's balanced strategy for expected rate cuts.
Looking ahead, the Fed needs to cautiously address tariff shocks, which are seen as one-time price disturbances, but if immigration restrictions intensify, it will further weaken the labor market. Economist Jason Furman warns that the scent of stagflation is getting stronger, leaving the Fed with no good options.
Overall, this news highlights the macroeconomic uncertainty's impact on crypto, advising investors to closely monitor FOMC meeting developments.
