US economic growth slowed significantly in the first quarter of this year, while inflation remained high, leading to concerns about stagflation and causing a decline in US stocks and Bitcoin. Jamie Dimon, CEO of JPMorgan Chase, warned on Thursday that the market’s expectations for a soft landing of the US economy are too optimistic, and that stagflation, similar to the 1970s, may occur again.
The US Department of Commerce announced last night that the latest data showed that the country’s GDP grew at an annual rate of only 1.6% in the first quarter of this year, far below analysts’ expectations. Compared to the strong growth of 3.4% in the fourth quarter of last year, it has slowed significantly. However, the core PCE index increased by 3.7% year-on-year, the largest increase in a year.
In the face of economic slowdown and persistent high inflation, investors are increasingly concerned about the risk of stagflation. On Thursday, the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite Index all fell, with only the Philadelphia Semiconductor Index rising. Bitcoin also briefly fell below $63,000 last night.
After the release of the data by the Department of Commerce, market expectations for a rate cut by the Federal Reserve this year were further revised downward:
– The two-year US Treasury yield exceeded 5%.
– Yields on US Treasuries of various maturities rose to their highest levels this year.
– The interest rate swap market currently estimates that the Federal Reserve will delay rate cuts until December at the latest, and it is expected to only cut rates by 35 basis points this year, far below the initial expectations of six rate cuts of 25 basis points each.
David Donabedian, Chief Investment Officer at CIBC Private Wealth US, said that the current situation is the worst. Economic growth is lower than expected, while inflation remains high. Usually, a slowdown in economic growth will lead to a surge in calls for rate cuts, but due to higher-than-expected inflation, the Federal Reserve’s ability to take action is severely limited.
Note: Stagflation refers to an economic phenomenon where there is both economic stagnation, high unemployment, and continuous price inflation. This situation is more difficult to handle than an economic recession.
The last time the United States experienced stagflation was in the 1970s. Geopolitical conflicts led to the Organization of the Petroleum Exporting Countries (OPEC) restricting crude oil exports to the United States, causing energy prices to skyrocket. In addition, high government spending and other factors such as the decoupling of the US dollar from gold pushed inflation to double digits, causing the economy to slump.
To control the situation, then Federal Reserve Chairman Paul Volcker was forced to raise interest rates to 20%, successfully curbing soaring prices but plunging the United States into a deep recession. Therefore, analysts are extremely concerned about the risk of stagflation.
Jamie Dimon, CEO of JPMorgan Chase, warned on Thursday that the market’s expectations for a soft landing of the US economy are too optimistic. He believes that the possibility of a soft landing is only 50%, and stagflation similar to the 1970s may occur again.
Amid growing concerns about stagflation, according to data from HODL15Capital, US spot Bitcoin ETF saw a net outflow of $197 million on the 25th, marking two consecutive days of outflows. Among them, Grayscale’s GBTC saw a net outflow of $140 million, BlackRock’s IBIT had no inflow, and Fidelity’s FBTC saw its first net outflow of approximately $23 million.
Rachael Lucas, a cryptocurrency analyst at BTC Markets, said that zero inflows are normal and do not indicate the failure of the product. The inflow of funds is closely related to market performance and geopolitical tensions, highlighting the complexity that affects ETF fund flows.