That scenario undermines the assumption that an era of cheap money is close at hand. For Bitcoin, whose bullish narrative has leaned heavily on falling inflation and faster rate cuts, the timing now looks far less certain. As inflation risks rebuild, the Federal Reserve’s room to ease policy appears increasingly constrained.

Inflation Pressures Are Re-Emerging

According to the analysis, several structural forces are resurfacing. Tariffs introduced during the Trump administration, tighter labor markets, and persistent fiscal deficits are regaining influence. Crucially, the authors argue that importers have not yet fully passed tariff-related costs on to consumers.

Posen and Orszag estimate that this delayed cost pass-through could be largely completed by mid-2026. When it is, headline inflation may receive an additional 50 basis point boost. At the same time, immigration policies and widening budget gaps risk offsetting productivity gains linked to artificial intelligence.

Bitcoin and Bonds Face the Same Constraint

Rising Treasury yields reinforce this message. The U.S. 10-year yield recently climbed to 4.31%, its highest level in five months, reducing the appeal of risk assets. Analysts at crypto exchange Bitunix warn that easing policy before structural inflation pressures clearly subside could force a sharper adjustment later.

Bitcoin bulls continue to price in aggressive rate cuts. However, inflation that remains near or above 4% weakens that thesis. As borrowing costs stay elevated, liquidity-driven rallies become harder to sustain.

At this stage, the core risk is not price alone but timing. If inflation fails to cool as expected, the recovery narrative for crypto assets may be delayed rather than denied.

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His statement came just four days before the meeting. Pressure is mounting on Fed Chair Jerome Powell from both political and economic fronts. While expectations of a rate cut are weakening, Rieder’s remarks stood out. 

Would a Rate Cut Benefit the Economy? 

BlackRock Rieder argued that high interest rates are putting pressure on the housing market. He stated that the current levels make borrowing expensive and refinancing unattractive. This situation has led to declining homeownership rates and a contraction in the construction sector. 

“If we lower interest rates, home prices could fall, and we could build more homes,” said Rieder, suggesting this could also help bring inflation down. He also noted that current rates remain effective in containing inflation. 

However, strong employment data released in the U.S. have dampened hopes for a rate cut. Investors have largely scaled back their expectations for a July reduction. Still, figures like Rieder believe the Fed is enforcing an overly tight policy. 

The Fed’s Decision Process and Rising Political Pressure 

According to CME FedWatch Tool data, the probability of a rate cut at the July meeting is only 4.1%. This figure implies a potential cut to 400–425 basis points, while the chance of rates remaining unchanged stands at a dominant 95.9%. 

Meanwhile, Fed Chair Jerome Powell is facing not just economic but also political pressures. U.S. President Donald Trump has intensified his criticism of Powell, blaming him for economic damage due to his refusal to lower rates. 

Additionally, Powell is facing another crisis. Representative Anna Paulina Luna accused Powell of lying twice during a Senate testimony and referred the issue to the Department of Justice. This raises questions about Powell’s credibility and tenure. 

Ultimately, the Fed’s decision will be shaped not only by economic indicators but also by political winds. Calls for a rate cut are growing louder, but the real answer will come at the FOMC meeting.

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The data came slightly below expectations, indicating that the US labor market continues to show strength. Thus, unemployment claims have decreased for the second consecutive week. 

Why Are US Unemployment Claims Important? 

This weekly data shows the number of people filing for unemployment benefits for the first time. It is considered a key indicator of labor market health. A decrease in claims suggests fewer layoffs and a resilient employment market. 

Details of This Week’s Data: 

• Expectation: 236K 
• Previous: 233K 
• Actual: 227K 

What Does This Mean for Fed Policies? 

The lower-than-expected US unemployment claims strengthen the likelihood that the Fed will maintain its current monetary policies. The labor market’s resilience signals ongoing economic growth and may support the Fed’s decision to pause or slow down interest rate hikes. 

On the other hand, the decline in unemployment raises the risk of continued inflationary pressures, so the Fed may remain cautious. Therefore, these data will be an important factor influencing the direction of monetary policy in upcoming Fed meetings. 

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What Does $37 Trillion Mean?

By mid-2025, total federal debt rose to $36.8 trillion and is expected to exceed $37 trillion soon. This amount equals about 123% of the US Gross Domestic Product (GDP), surpassing World War II era debt levels. The Congressional Budget Office (CBO) predicts this ratio will exceed 130% over the next decade if current policies continue. 

Russian Foreign Minister Sergey Lavrov stated that the US debt level is out of control. He also said the US dollar is no longer a reliable means of payment.
Lavrov commented, “COVID-19 revealed numerous flaws in the global trade and financial system. The dollar turned into a penalty tool. Trust has been shaken.” He highlighted that the number of highly indebted countries rose from 22 in 2011 to 59 today.  These remarks reveal that the growing US debt burden causes concerns not only locally but also for global financial stability. 

Key Risks and Economic Impacts 

• Rising Interest Payments: As interest rates rise, the government will pay over $1 trillion annually in interest. This amount is close to, or even surpasses, the defense budget, potentially overshadowing health, infrastructure, and education spending. 
• Slowing Economic Growth: Economists warn that shifting investments from private to government debt may harm productivity and wage growth. Studies suggest rising debt could reduce GDP by over 1% by 2035, leading to millions of job losses. 
• Inflation and Fiscal Imbalance: Large budget deficits may force central banks to keep interest rates low, complicating inflation control and weakening monetary policy effectiveness. 
• Credit Rating and Investor Confidence: Moody’s downgraded the US credit outlook in 2024. This could raise borrowing costs and cause investors to lose confidence. Higher Treasury yields may increase volatility in both domestic and global markets. 

Pressure on the US Dollar

Increasing debt and deficits erode confidence in the dollar. While still the global reserve currency, fiscal indiscipline pushes investors away, creating downward pressure on the dollar’s value. 

Billionaire investor Ray Dalio warns that Treasury supply will outpace demand, driving inflation up and the dollar down. Fiscal experts say uncontrolled spending could add $6 trillion to debt and increase interest costs over the next decade. Institutions like the Cato Institute and Peter G. Peterson Foundation call for bipartisan reforms. 

Still, the US retains important advantages. The dollar’s global reserve status maintains strong demand. Most debt is held domestically by government funds and American investors, reducing foreign sales risk. In global crises, investors view US Treasuries as a safe haven. Despite high debt, borrowing costs remain relatively low. 

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With this remark, Powell reaffirmed that political pressure has no influence on the Fed’s monetary policy. He also emphasized that “the President’s calls for rate cuts do not affect our job in any way.”

Inflation Uncertainty and Tariff Impact

Another critical focus of the meeting was inflation and the impact of tariffs. Powell said, “The core inflation picture looks good, but we can’t say how long it will last.” He added that there is significant uncertainty around tariffs and their longer-term implications.

You Might Be Interested In: Elon Musk Talks About the Name of a New Memecoin!

“We haven’t yet seen major economic effects from tariff data,” Powell said, while warning that if the sharp increases in tariffs continue, “we could see higher inflation and lower employment.”

He also noted, “According to survey participants, inflation expectations are now being shaped by tariffs. So far, tariffs have been significantly larger than expected.”

Rate Cut Signals Without a Timeline

Although Powell left the door open for future rate cuts, he refrained from committing to any specific timeline. Regarding market expectations of two cuts in March, he responded, “We can’t make that prediction right now; we need to wait until June.”

One of Powell’s key remarks was:

“There are conditions this year where rate cuts could be appropriate.” He added, “When things evolve and it’s appropriate, we can move quickly. But now is the time to wait before changing policy.”

These statements suggest that the Federal Reserve is not rushing into decisions but remains prepared to act swiftly if economic data requires it.

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