Following Donald Trump’s announcement of Liberation Day tariffs, Bitcoin and several altcoins surged ahead of stocks.
Bitcoin (BTC) fluctuated between $80,000 and $90,000, while Ethereum (ETH) remained just below $2,000. Overall, the cryptocurrency market capitalization fell from $2.7 trillion to $2.6 trillion.
In contrast, the stock market experienced its worst week since 2020, with major indices like the blue-chip Nasdaq 100, S&P 500, and Dow Jones descending into correction territory.
Surprising Fed Warning on Stagflation
Bitcoin and altcoins may face pressure as Federal Reserve Chairman Jerome Powell warned that Trump’s tariffs could result in increased inflation and slower economic growth for the United States.
Powell remarked, “Our obligation is to keep long-term inflation expectations well anchored and ensure that a one-time price level increase does not evolve into an ongoing inflation issue,” during his Friday address.
High inflation coupled with high unemployment could lead to stagflation, which poses a unique challenge since measures to address one issue—like lowering interest rates to stimulate growth—can exacerbate another, such as inflation, and vice versa.
Powell indicated he was not in a rush to lower interest rates, citing persistent inflation levels. His comments were in line with others, like Raphael Bostic and Adriana Kugler, who advocate for maintaining higher rates longer to tackle inflation.
However, Trump disagrees with this approach.
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates,” Trump stated on his social media platform, accusing Powell of engaging in political maneuvering.
The Fed’s Board of Governors operates as an independent entity.
Analysts note that a more hawkish Fed during a period when a recession is anticipated could adversely affect Bitcoin, altcoins, and stock markets. Historically, these assets perform well when the Fed is implementing interest rate cuts.
As of Saturday, Bitcoin was trading around $83,435. See the chart below.
Bond Market and Crude Oil Prices Provide Support
On a more optimistic note, leading flash indicators suggest that the Federal Reserve may decrease interest rates sooner than anticipated.
Crude oil prices have sharply declined in recent days, with Brent, the global standard, plummeting to $64 on Friday. Meanwhile, West Texas Intermediate fell to $62.
Additionally, copper prices, which are often regarded as a reflection of the global economy, have also dropped significantly. These trends indicate the potential for a recession as demand from consumers and businesses weakens.
The bond market reflects similar sentiments, as the yields on 10-year and 2-year bonds have fallen to 3.95% and 3.5%, respectively.
These indicators suggest a potentially dovish Fed, which may initiate interest rate cuts sooner. Earlier this week, Goldman Sachs increased its forecast for U.S. recession chances and expects the Fed to enact at least three cuts later this year.
Historically, risky assets such as stocks, Bitcoin, and altcoins have fared well when the Fed lowers rates. For instance, all these assets experienced significant gains in 2020 when the Fed implemented an emergency rate cut at the start of the pandemic. Stocks also enjoyed a decade-long rally when the Fed reduced rates during the Global Financial Crisis.
