The Federal Reserve is growing increasingly alert to stagflation risks

While Chair Jerome Powell insisted that the economy is in "good shape" and emphasized that the central bank is in “a good position to wait and see,”

The Federal Reserve is growing increasingly alert to stagflation risks - an uneasy mix of slowing growth and rising inflation that could challenge policymakers.

While Chair Jerome Powell insisted that the economy is in "good shape" and emphasized that the central bank is in "a good position to wait and see," prior to shifting policy, subtle changes in the central bank's policy statement pointed to heightened concerns over the economy's direction.

The U.S. central bank today kept its benchmark interest rate in a range of 5.25% to 5.5%, as widely expected, and signaled that it anticipates holding the rate steady at the upcoming meetings. However, the statement now mentions the "accumulation of evidence" on inflation and the "mixed economic activity" in contrast to the previous expressions of "confidence" in the outlook and anticipation of further progress toward the Fed's goals.

Moreover, the central bank expressed concern over a rise in unemployment claims, which could be a sign of a slowdown in the labor market.

"The Fed is worried about stagflation," Zach Pandl, head of research at Grayscale, posted on X after the decision. "We think that outcome would be good for bitcoin."

In an earlier report, Pandl argued that rising tariffs contribute to stagflation, which historically harms traditional assets but benefits scarce stores of value like gold. "Bitcoin wasn't around for past stagflations," he wrote, "but can be considered a scarce digital commodity and is increasingly viewed as a modern store of value."

Bitcoin traded in a tight range following the Fed's announcement and Powell's remarks. It briefly touched $97,500 earlier Wednesday on optimism around U.S.-China trade talks before settling back to $96,500 - up 1.6% over the past 24 hours.

The CoinDesk 20 Index (CD20), a broader gauge of the crypto market, was up just 0.3% over the same period, weighed down by 1%-3% declines in XRP, AVAX, UNI, NEAR, and AAVE.

Meanwhile, equities recovered modestly from earlier losses, with the S&P 500 and Nasdaq closing 0.4% and 0.3% higher, respectively.