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Key points:

Bitcoin traders wait for signals of US economic policy loosening as data forces the Federal Reserve into a corner.

Recession is more likely than not, sources say, amid rising unemployment and resurgent inflation.

Bitcoin and risk assets should ultimately gain from a recession shock.

Bitcoin (BTC) stands to gain as a US recession becomes the “base case scenario.”

Fresh analysis from sources including trading resource The Kobeissi Letter makes grim predictions for the US economy and Federal Reserve.

Fed’s “worst nightmare” gets real

US economic health is due to take a hit on the back of trade tariffs and the resurgent inflation, which may accompany them.

The latest macroeconomic data, which includes Q1 GDP and the Fed’s “preferred” inflation gauge, puts officials in a tight spot, Kobeissi says.

GDP came in markedly below expectations, turning negative against a forecast 0.3% gain.

US quarterly GDP growth (screenshot). Source: The Kobeissi Letter/X

“Effectively, the Fed must pick between containing either inflation or unemployment,” it summarized, calling the situation the Fed’s “worst nightmare.”

A key issue is the extent and timing of any interest rate cuts — something that crypto and risk-asset traders are keenly eyeing thanks to the positive knock-on effect for markets.

“Not reducing interest rates will further weaken US GDP and likely increase unemployment. However, if interest rates are cut immediately, we would expect to see another rebound in inflation,” Kobeissi continued.

Thus in a “lose-lose” situation, the Fed faces the threat of both stagflation — rising inflation with rising unemployment — and a full-on recession.

“A recession in the US has become our base case scenario,” Kobeissi added, linking to rising odds on prediction service Kalshi.

Source: Kalshi

Bitcoin analyst sees recession silver lining

The latest data from CME Group’s FedWatch Tool underscores market expectations for Fed policy, which has remained conservative through 2025 despite the insistence of US President Donald Trump that rates head lower.

The June meeting of the Federal Open Market Committee (FOMC) is currently the event that should spark the next 0.25% cut, consensus suggests. The May meeting, however, now has just 3% odds of such an outcome.

Fed target rate probabilities (screenshot). Source: CME Group

Crypto market participants are meanwhile weighing the possible Fed course as conditions become increasingly hard to navigate.

“Yesterday the market was pricing 57% probability of 25bps cut for June 18th FOMC. Today it's 63%,” popular trader Skew commented on the FedWatch data.

“Push coming to shove in terms of economic data & rate cuts. Fed will still be concerned about price pressures but more so about weakness within the economy, especially if policy isn't corrected in time.”

Fed target rate probabilities for June FOMC meeting. Source: CME Group

Crypto trader, analyst and entrepreneur Michaël van de Poppe predicted that recession alone would cause the Fed to rethink its stance.

“The rumours for a potential recession is increasing, which should strengthen the thesis for the FED to loosen up the policy,” he wrote in part of an X reaction to Q1 GDP data. 

“That will likely be a low on the markets, liquidity to be added and risk-on to thrive.”

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.