Is the U.S. Headed for a Recession?

Is the U.S. Headed for a Recession? Implications for Bitcoin

Rising Unemployment and Federal Reserve’s Response

Unemployment in the United States is increasing faster than the Federal Reserve predicted. This week, Fed Chairman Jerome Powell is expected to adopt a “dovish” tone, indicating a softer approach and the possibility of quicker interest rate cuts. In other words, the macroeconomic climate is becoming increasingly favorable for Bitcoin, although risks remain.

A More Favorable Macroeconomic Climate for Bitcoin

Recently, inflation in the United States has seen a sudden decline. At the beginning of 2024, surprisingly high inflation figures caused fears of a second wave of inflation. However, it now appears that these inflation spikes were exceptions, and the target of 2.0% set by the Federal Reserve seems within reach.

Also read: Daily overview and update of US key economic figures

Supporting this is the latest unemployment rate, which came in at 4.1% last Friday, slightly above the Fed’s year-end forecast of 4.0%. This suggests that inflation may be decreasing faster than expected as the American economy starts to show signs of weakness. Consequently, interest rates may be lowered sooner, which is generally positive for Bitcoin. However, there is still danger on the horizon.

A Recession in America?

Based on the Sahm Rule, a recession cannot be ruled out. If unemployment rises to 4.2% in July, it will trigger the Sahm Rule. This indicator, developed by economist Claudia Sahm, states that a recession begins when the three-month moving average of the unemployment rate increases by at least 0.5% from its lowest point in the past 12 months. Simply put, a rapid rise in the unemployment rate within a short period signals that the economy is either entering or already in a recession.

In the short term, these developments are positive for both stocks and Bitcoin prices, as they suggest interest rates might be cut sooner, which investors are eagerly anticipating. However, the risk of a recession poses a significant threat, particularly for stocks. If the economy slips into a recession, company revenues are likely to suffer, leading to unmet expectations and falling stock prices.

For Bitcoin, the response remains uncertain. It’s possible that investors may turn to Bitcoin as a hedge against declining stock values. This shift could bolster Bitcoin prices as traditional assets falter.