Bitcoin’s price has reversed after hitting a new all-time high, now trading at $121,770. It briefly dropped to $121,172 but has since partially recovered. Although most altcoins did not accompany Bitcoin’s rise, they predictably mirrored its decline. This situation is concerning. What does the Federal Reserve’s stagflation warning mean?
Cryptocurrency Decline and Stagflation
Just moments ago, Federal Reserve member Kashkari issued a stagflation warning regarding the U.S. economy. Over the past 15‑20 days, the opinions of nearly all Federal Reserve members have been shared intensely. However, such a clear warning signal concerning the economy is unprecedented. If this serves as a prelude to tomorrow evening’s Fed minutes, the market could witness even more severe downturns within 24 hours.
“The data suggests some stagflation signals. It’s too early to know if inflation will be permanent due to tariffs.”
The World Trade Organization mentioned that the primary impact of tariffs will be felt next year. Their statement today stoked concerns that the recent limited increase in inflation might accelerate next year. U.S. markets started to decline, and Bitcoin followed suit.
While AVAX fell by 7.5% and DOGE saw a 6% loss, most altcoins suffered losses exceeding 3%. If today’s decline results in significant outflows in the ETF sector, sales may accelerate with the daily closing.
What is Stagflation?
We know what inflation is: citizens encounter continuously rising prices, and interest rates go up. Recession describes periods of economic stagnation with increasing unemployment. Currently, the U.S. faces rising unemployment and prices alongside slow growth. Stagflation accurately defines this situation, and Kashkari is concerned.
ADP data indicates that the labor market is not heading in a positive direction. It remains unclear how tariffs will affect inflation or how long this will take to understand. Many Federal Reserve members are skeptical about data reflecting limited short‑term effects, considering the substantially increased effective tariff rate by the U.S.
If the pace of inflation accelerates and layoffs trigger a massive unemployment wave due to sluggish new hirings, the Federal Reserve could face significant challenges and become deadlocked. Time will reveal the outcome, but discussing these issues presently is unfavorable for risk markets.