The Nightmare Scenario for the Federal Reserve is Materializing as Bitcoin's Price Skyrockets
Bitcoin has unexpectedly surged, surpassing its prior record high and reaching over $106,000, following confirmation from incoming U.S. president Donald Trump about his game-changing plan for Bitcoin.
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The Bitcoin price has more than doubled since dropping to August lows, strengthened by Tesla billionaire Elon Musk's fueling of doubt around the future of the U.S. dollar.
Now, with a leak suggesting Russia may precede the U.S. in establishing a Bitcoin reserve, the Federal Reserve has been alerted that its worst fear could materialize in 2025.
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"We anticipate stagflation in 2025, the Fed's worst nightmare," analysts with The Kobeissi Letter revealed on X, referring to a blend of economic stagnation and skyrocketing inflation.
Kobeissi analysts cited a report from asset management titan Apollo, which predicted a rebound in inflation in 2025 and not a softening to justify Fed [interest rate] reductions.
"The likelihood is rising that the Fed may need to increase interest rates in 2025," Torsten Sløk, Apollo's chief economist, wrote in the report, questioning: "Will we witness a 1970s-style scenario with the Fed easing policy too rapidly, igniting an inflation surge in 2025?"
Last week, billionaire investor Ray Dalio warned of an approaching "debt crisis" that he anticipates will result in a significant decline in the value of the U.S. dollar.
U.S. debt has skyrocketed over the past few years, reaching $34 trillion at the start of 2024, with Covid and lockdown stimulus measures driving significant government spending and contributing to soaring inflation in 2022.
Inflation exceeding 10% forced the Federal Reserve to increase interest rates at an unprecedented pace, escalating debt interest payments and triggering anxieties of a "death spiral."
This week, the Federal Reserve is widely expected to reduce interest rates by a quarter-point, despite data indicating inflation has risen again, with a Bloomberg survey of economists spotting a consensus for three additional interest rate reductions in 2025.
However, a Financial Times poll of economists unveiled the Fed will adopt a more cautious approach to interest rate cuts in 2022 due to concerns the Trump administration’s policies, such as sweeping tariffs, deportations, and tax and regulatory cuts, could intensify inflation.
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"Inflation has decreased more painlessly than I and most people had expected, but I believe we may still face challenges in reaching our target, and thus it's unlikely the Fed will be eager to reduce rates," Jonathan Wright, a former Fed economist now at Johns Hopkins University, told the FT.
The anticipated Fed interest rate cut this week has aided the Bitcoin price surge, with analysts predicting this momentum could propel it even higher in the coming weeks.
Bitcoin's "advance into all-time high levels, including this morning's surge above $106,000, underscores the bullish sentiment," Alex Kuptsikevich, FxPro's chief market analyst, said in emailed comments.
"This is particularly significant after a three-week consolidation near the $100,000 mark. An acceleration in growth is now likely if unexpected developments from the traditional financial markets do not halt this rally."
The Federal Reserve has expressed concern about Russia potentially establishing a Bitcoin reserve before the United States, as reported by some sources. This scenario, if realized, could pose a significant challenge to the Federal Reserve's monetary policies.
In response to the Bitcoin price surge and potential challenges from digital currencies, Jerome Powell, the chairman of the Federal Reserve, might need to reevaluate the Fed's stance on cryptocurrencies, such as Bitcoin and its impact on traditional financial markets and the U.S. dollar.
