Bitcoin price held steady at the important resistance at $112,000 as investors waited for the August inflation report, which is expected to present the Federal Reserve’s worst scenario: stagflation. It remains down by 9.85% from the year-to-date high of $124,200.
Fed’s Nightmare Scenario is Unfolding
Bitcoin price rose to $112,000 from the year-to-date low of $107,270 as market participants prepared for the upcoming Federal Reserve interest rate decision scheduled for Wednesday next week.
This decision will come as the bank faces its nightmare scenario known as stagflation. Stagflation is a situation in which a country’s inflation is high, while its economic growth is slowing.
One of the best measures of a country’s economic growth is the labor market. A healthy economy has growing wages, a low unemployment rate, and high job openings.
The US economy is experiencing a weak labor market, with the unemployment rate rising to 4.3%, the highest point since the pandemic. It added just 22k jobs in August, and experienced its first month of job losses in June.
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The upcoming inflation data will confirm that Trump’s tariffs are having an impact on prices. Analysts expect the data to show that the headline CPI rose from 2.7% in July to 3.0% in August, while the core inflation rose to 3.2%.
Stagflation is the Fed’s worst nightmare because handling it is risky. Cutting interest rates to boost the economy and the labor market tends to push inflation higher over time. At the same time, hiking interest rates to slow inflation risks stoking inflation. Therefore, the bank has to choose one battle while risking the impact.
In this case, the bank is expected to cut interest rates to safeguard the labor market, with Polymarket odds of a September interest rate cut being at almost 100%.
Historically, Bitcoin does well when the Fed is cutting rates, as it did during the pandemic when it brought them to zero and started to implement quantitative easing. The risk, however, is that the Fed cut has already been priced in, which could lead to a “sell the news” scenario as JPMorgan analysts warned about the stock market.
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Bitcoin Price Technical Analysis
The daily timeframe shows that the BTC price has come under pressure in the past few weeks, moving from a high of $124,2000 in August to the current $112,000.
It formed a double-top pattern at $123,027 and a neckline at $112,000, where it remains now. The stock has moved below the 50-day Exponential Moving Average (EMA) and the 23.6% Fibonacci Retracement level.
It has retested the double-top’s neckline at $112,000. This is a sign that it may resume the downward trend in the coming days. If this happens, it may drop to the next key support at $105,000, the 38.2% Fibonacci Retracement level.
