Bitfinex Alpha #172 | Bitcoin Rebounds as Stagflation Pressures Mount

Figure 6. 12Month Percent Change in Consumer Price Index Source: Bureau of Labor Statistics) While inflation is running hotter than expected, the labour market is cooling sharply. The Labor Department reported last week that initial jobless claims jumped by 27,000 to 263,000, the highest since October 2021. Payroll revisions showed US job growth may have been overstated by nearly 1 million in the 12 months through March. Recent monthly job gains have slowed to just 29,000 on average, down from 150,000 in July. Unemployment has edged modestly higher, underscoring a softer employment backdrop.

This combination of rising inflation and weakening employment highlights a rare dilemma for the Federal Reserve. The central bankʼs dual mandate of maximum employment and stable prices is pulling in opposite directions. Cutting rates aggressively risks entrenching tariff-driven inflation, while holding steady could worsen job losses.

Despite these risks, markets have fully priced in a rate cut. The CME FedWatch Tool shows a 93.4 percent probability that the Federal Open Market Committee FOMC) will lower the federal funds rate by 25 basis points to a range of 4.00 to 4.25 percent at its meeting on Tuesday, September 17. The toolʼs conditional meeting probabilities also indicate two additional cuts in October and December, bringing this yearʼs total reductions to 75 basis points. Looking ahead, policymakers are expected to project an additional 75 basis points of easing in 2026, aligning the policy rate with the Fedʼs estimated long-run neutral rate of 3 percent.