After Donald Trump announced his Liberation Day tariffs, Bitcoin and most altcoins outperformed stocks.
Bitcoin (BTC) remained between $80,000 and $90,000, while Ethereum (ETH) was stuck slightly below $2,000. The total market cap of all cryptocurrencies dropped from $2.7 trillion to $2.6 trillion.
Meanwhile, the stock market had its worst week since 2020. The blue-chip Nasdaq 100, S&P 500, and Dow Jones slumped into a correction.
Shock Fed warning on stagflation
Bitcoin, altcoins could come under pressure after the Federal Reserve chairman Jerome Powell warned that Trump’s tariffs will likely lead to higher inflation and slower growth for the U.S. economy.
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said Friday.
High inflation and high unemployment can create stagflation, which is difficult to manage because actions to fix one issue—like cutting interest rates to boost growth—can worsen another, such as inflation, and vice versa.
Powell warned that he was not in a hurry to cut interest rates, since inflation remained high. His statement mirrored that of other officials like Raphael Bostic and Adriana Kugler, who have supported higher rates for longer to combat inflation.
Trump, however, disagrees.
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates,” Trump wrote on his social media platform, accusing Powell of “playing politics.”
The Fed’s Board of Governors is an independent government agency.
Observers note that a more hawkish Fed, at a time when analysts are predicting a recession, would negatively impact Bitcoin, altcoins, and stock prices. Historically, these assets do well when the Fed is cutting interest rates.
At last check Saturday, Bitcoin was trading at roughly $83,435. See below.
Bond market and crude oil prices offer a cushion
On the positive side, top flash indicators hint that the Federal Reserve will cut interest rates sooner.
Crude oil prices have crashed in the past few days, with Brent, the global benchmark, crashed to $64 on Friday. The West Texas Intermediate dropped to $62.
Additionally, copper, which is often seen as a barometer of the world economy, also nosedived. These assets point to a potential recession as demand from individuals and companies wane.
The bond market is sending the same message, with the 10-year and 2-year yields plunging to 3.95% and 3.5%, respectively.
These signals point to a potential dovish Fed, which could start cutting interest rates soon. In a statement earlier this week, Goldman Sachs raised the U.S. recession odds and predicted that the Fed will deliver at least three cuts later this year.
History shows that risky assets like stocks, Bitcoin, and altcoins do well when the Fed cuts rates. For example, they all surged in 2020 when the Fed delivered an emergency rate cut at the onset of the pandemic. Stocks also had a decade-long rally when the Fed slashed rates during the Global Financial Crisis.
