Bitcoin (BTC) 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.

Key points:

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

A 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 0.3% gain in the forecast.

“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.”

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.

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.

Related: Bitcoin 'hot supply' nears $40B as new investors flood in at $95K

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.

Meanwhile, crypto market participants are 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.

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.