#FedWatch Everybody agrees that the flight against inflation has stalled.’

— Economist Mohamed El-Erian

Tariffs tend to raise prices for consumers and businesses as they percolate into the economy. And inflation has remained stubbornly high at about 3%.

This has fanned fears that the Fed’s commitment to interest rate cuts will waver, and stocks and crypto have fallen sharply as a result of this and other macroeconomic concerns.

Bitcoin had plunged into a potential bear market, while the rest of the crypto market has tumbled 20%, to $2.9 trillion, since Trump took office on January 20.

Traditional markets have also been fried, with both the S&P 500 and the tech-heavy Nasdaq100 plunging into correction territory in the last month.

2% target

Addressing a crowd at Blockworks’ Digital Asset Summit Wednesday, economist Mohamed El-Erian said he had recently increased his odds a recession would hit the US from a one-in-ten chance to one-in-four.

“Everybody agrees that the flight against inflation has stalled,” he said.

“If [the Fed] was really serious about a 2% inflation target, the market would be speculating about when is the next hike, not when is the next cut.”

Meanwhile, investors are split on the outcome of Trump’s trade wars and cost cutting efforts, according to El-Erian.

On the one hand, some believe it will unleash the private sector and tame the national debt.

“Then there’s the other possibility, which is the Jimmy Carter possibility,” he said, referring to the one-term US president who lost reelection in 1980 amid soaring inflation and a moribund economy.

“That policy pushes you into a stagflation which persists.”

Relief rally

Even so, all investors apparently wanted to see on Wednesday was no surprises from the Fed.

Optimistic investors staged a last-minute rally in the hours before the FOMC’s statement at 2 PM New York time.

Bitcoin jumped 3.2% and Ethereum spiked 8%.

The big winner was XRP, the Ripple connected cryptocurrency, which soared 12%.