The US economy is losing momentum: US inflation above expectations creates stagflation risk

December US Economic Data Package Confirms Investors’ Worst Nightmare — Inflation Continues to Rise in America, While Economic Growth Sharply Slows Down. This combination Pressures the Crypto Market and All Risk Assets, as the Fed Faces an Unbearable Dilemma: Fight Inflation or Save the Economy?

US Paradox: Inflation Accelerates Amid GDP Decline

Data for Q4 2025 presents a Contradictory Picture. On one hand, US GDP growth fell to 1.4% quarterly — a catastrophic decline compared to 4.4% in the previous period. Such a drop is literally half of analysts’ forecasts, which expected 2.8%.

On the other hand, inflation in the US started to Rise at this moment. The core Personal Consumption Expenditures (PCE) index increased by 0.4% month-over-month, versus an expected 0.3%, and annual inflation reached 3.0%, against an anticipated 2.9%. The overall GDP deflator jumped to a quarterly rate of 3.7%.

Household consumption technically remains at a 0.4% monthly increase — consumers in the US haven’t “broken” yet. But within these figures, an unpleasant shift is happening: spending on services is rising, while spending on goods is falling. Inflation in the services sector remains stubbornly high, which is the most “sticky” component, hardest to bring down.

Why This Is a Stagflation Threat, Not a Soft Landing

Economists and investors often referenced a “soft landing” scenario — where the Fed manages to curb inflation without a serious drop in output. But new data points in a different direction. When the economy falls and prices rise simultaneously — this is classic stagflation. And the market does not like it at all.

Household consumption remains relatively resilient, but this may be the last push on already depleting fuel. US GDP is breaking lower bounds, inflation refuses to comply with the Fed’s 2% target, and pressure in the services sector persists. The problem’s geometry is becoming increasingly acute.

The Fed in a Trap: Why US Inflation Keeps Rates Frozen

The main policy takeaway: the likelihood of a rate cut soon has sharply decreased. After such inflation data, the market will struggle to price in a near-term Fed rate reduction. The central bank’s rhetoric will most likely remain hawkish at least until the chairmanship changes in May 2026.

The logic of Fed Chair Powell’s statements will probably be: “Yes, economic growth is slowing, but inflation in the US is not fully defeated.” The Fed will find itself in a trap of its own making — if it aggressively cuts rates in response to weak GDP, inflation could flare up again. If it waits for inflation to fall further, it risks triggering an economic crash.

Crypto Market at a Crossroads: Two Scenarios After the News

For BTC and altcoins, today’s data package has created uncertainty. In the short term, this favors the bears — volatility is rising, and the market is unsure whether to overvalue the weak US GDP or the accelerating inflation.

Scenario 1 (short-term downward pressure): If bond yields and the dollar (DXY index) continue to rise, this will further pressure BTC and cryptocurrencies. US inflation outweighs GDP weakness in traders’ minds, leading them to seek protection in safe assets.

Scenario 2 (rebound after panic): If the market shifts priorities and decides that weak GDP is more important than the temporary spike in US inflation, a rebound could follow the initial shock. In this case, expectations of future rate cuts by the Fed would support risk assets again.

Current Chart Picture

At the time of analysis, BTC has already reacted with a sharp decline. The price fell into a downtrend on the 30-minute timeframe, hitting target levels and bouncing off the $66,280 level. Latest data shows BTC trading around $67,890, up +2.42% over 24 hours.

But bears should not relax yet — the hourly, two-hour, and 2.5-hour timeframes still show a steady uptrend. The current decline can be interpreted as a retest of the breakout from the Bullish Wedge and a test of a key reversal level. No confirmation of further decline has appeared yet.

Inflation in the US will remain the main factor for the crypto market in the coming weeks. The Fed has already signaled it will not rush, meaning increased uncertainty for risk assets will persist.