Bitcoin has suddenly rocketed higher, passing its previous all-time high and climbing to over $100,000 as incoming U.S. president Donald Trump confirms his plan for a bitcoin game-changer.
The bitcoin price has more than doubled since dropping to August lows, helped by Tesla billionaire Elon Musk fanning flames of doubt over the future of the U.S. dollar.
Now, as a leak reveals Russia could be poised to beat the U.S. to a bitcoin reserve, the Federal Reserve has been warned its "biggest nightmare" could come true in 2025.
"We believe stagflation is coming in 2025, the Fed's biggest nightmare," analysts with The Kobeissi Letter posted to X, referring to a combination of economic stagnation and soaring inflation.
Kobeissi analysts pointed to a report from asset management giant Apollo which predicted "a rebound in inflation in 2025 and not a softening to justify Fed [interest rate] cuts."
"The probability is rising that the Fed may have to raise interest rates in 2025," Torsten SlĆøk, Apollo's chief economist, wrote in the report, asking: "Will we see a repeat of the 1970s with the Fed easing policy too quickly, triggering a rise in inflation in 2025?"
Last week, the influential billionaire investor Ray Dalio warned of a looming "debt crisis" which he expects will trigger a sharp decline in the value of the U.S. dollar.
U.S. debt has soared over recent years, topping $34 trillion at the beginning of 2024, with Covid and lockdown stimulus measures contributing to massive government spending and helping to send inflation spiraling out of control in 2022.
Inflation of over 10% forced the Federal Reserve to hike interest rates at a historical clip, pushing up debt interest payments and fueling fears of a "death spiral."
The bitcoin and crypto market is braced for the Federal Reserve to cut interest rates by 0.25% when it concludes its two-day policy meeting, with the market pricing in a 95% chance of a 25 basis point cut.
However, comments from Fed chair Jerome Powell during the subsequent press briefing could change the expected interest rate path for next year, with traders being told to stay sharp.
"Investors should remain vigilant, as the Fed's policy decisions are influenced by multiple factors, including inflation rates and economic resilience," Haider Rafique, chief marketing officer at crypto exchange OKX, said in emailed comments. "The upcoming meeting may also provide insights into the Fed's outlook for 2025, which could further influence market dynamics."
Some fear an interest rate cut coming alongside climbing inflation could risk causing "stagflation."
"If the Fed cuts rates while inflation continues to increase, it risks creating a situation of rising prices and slowing growthāa combination that could lead to stagflation," Chamath Palihapitiya, a technology investor who claims to have first bought bitcoin in 2011, posted to X and pointing to jobs data that showed inflation increased for the second straight month in November, with the consumer price index climbing to 2.7%.
This week, the Federal Reserve is widely expected to cut interest rates by a quarter-point, despite data showing inflation ticked higher last week, with a Bloomberg survey of economists finding a consensus for three further interest rate cuts in 2025.
However, a Financial Times poll of economists found the Fed will next year take a more cautious approach to interest rate cuts due to fears the Trump administrationās policies that include sweeping tariffs, deportations, and cuts to taxes and regulations, could stoke higher inflation.