Asset prices reflected a buoyant mood on Wednesday, with bitcoin (BTC) reclaiming $112,000 and European stocks rising at the open, as analysts increasingly downplayed fears of stagflation and recession triggered by horrible U.S. jobs data.
On Tuesday, the U.S. Bureau of Labor Statistics published a shocking update: The economy likely added 911,000 fewer jobs than originally reported in the 12 months through March 2025.
Think of it this way: for over a year, equity and crypto market bulls took risks, confident that a healthy labour market would keep the economy going despite sticky inflation. That confidence was shaken on Tuesday, and BTC quickly dropped from $113,000 to $110,800.
Some market participants viewed the BLS revision as evidence of an impending recession. However, Michael Englund, principal director and chief economist at Action Economics, said the data revealed very little about the business cycle or the state of the economy.
"These revisions are telling us more about the secular trajectory for the size of the U.S. labor force rather than where we are in the business cycle, so it really hasn't raised our perceived risk of recession even if it tells us that trend-growth for monthly payrolls is now likely a two-digit gain, measured in thousands, rather than a three-digit gain. We now assume trend-growth for the labor force of 90,000 going forward, rather than the 150,000-200,000 gains seen through most of the current expansion," Englund said in an email to CoinDesk.
He explained that the sharp growth in the U.S. labor force post-COVID, which outpaced economists' expectations, was largely driven by a net annual in-migration of roughly one million people. Now that has shifted to net out-migration, estimated between one and two million.
"This shift to a lower, secular growth path for the labor force implies slower growth in civilian employment as measured by household surveys and nonfarm payrolls from establishment surveys going forward," Englund said.
Financial markets appear to share that view, as European stocks opened higher today, with BTC back above $112,000. Altcoins such as ether (ETH), XRP (XRP), and dogecoin (DOGE) have erased a significant potion of Tuesday's drop. Meanwhile, Solana's SOL (SOL) has jumped to $222, the highest since Feb. 1. The S&P 500 futures traded 0.3% higher, with European stocks posting gains at the open.
Stagflation fears are exaggerated
The BLS revisions and the impending U.S. CPI data, which is expected to show inflation sticky at around 3% (well above the Fed's 2% target), have reinstated fears of stagflation, a situation characterized by persistent high inflation combined with high unemployment and stagnant economic growth. Stagflation is widely seen as the worst outcome for risk assets, including bitcoin.
However, fears that the economy is heading into stagflation seem overdone, according to Marc Chandler, Managing Partner and Chief Market Strategist at Bannockburn Global Forex, who noted that the U.S. GDP is still running above the Federal Reserve's "trend estimate" or a non-inflationary pace.
"I think stagflation is still exaggerated. The Atlanta Fed tracker still has the GDP well above the Fed's trend estimate, its non-inflationary pace.
Yes, inflation is a bit elevated, and it is likely to be more so with the August CPI print on Thursday. However, Fed officials, such as Waller and Bowman, want to look through tariff-related increases," Chandler told CoinDesk.
"It seems to me clear that the Fed will resume its easing course next week," he added.
Traders have pencilled in a 91% chance of the Fed cutting rates by 25 basis points to 4% on Sept. 17, according to the CME's FedWatch tool. Some investment banks and traders are anticipating a larger 50-basis-point rate cut.
Focus on U.S. CPI
These easing expectations could further strengthen if Wednesday's U.S. producer price index (PPI) and Thursday's consumer price index (CPI) unexpectedly signal disinflation, which would help risk assets remain bid over the near term.
That said, increased expectations could set the stage for disappointment.
"I think the CPI print this week will give us more context... If the market expects 50bps points to be cut, but FOMC Sept 17th only delivers 25bps... we'll get a sell-off," Greg Magadini, Director of Derivatives at Amberdata, told CoinDesk.
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