Bitcoin Threatened by a Fragile American Economy and Persistent Inflation

The weakness of American consumers should normally have strengthened expectations for rate cuts and supported Bitcoin. However, the simultaneous rise in inflation expectations creates a more unfavorable scenario: a fragile economy without rapid monetary easing.

In Brief

• American consumer confidence remains low, while their inflation expectations continue to rise.
• Households expect inflation of 4.7% year-on-year, complicating the Fed's rate cut outlook.
• The economic slowdown no longer guarantees monetary easing favorable to Bitcoin.
• Prolonged high rates could increase pressure on Bitcoin, which is close to $80,000.
• The upcoming release of the PCE index will be crucial for assessing inflation risks and the crypto market outlook.

Household Weakness No Longer Guarantees Rate Cuts

The University of Michigan's consumer confidence index stood at 48 points in October, down from 48.1 in September. This monthly stability masks a still very degraded level, 10.4% lower than in October 2025 and 15% lower than in February.

Current economic conditions have particularly declined by 8.3% in one month, from 50.9 to 46.7 points. Households thus find their immediate situation more difficult, especially when considering expensive purchases. The conditions for acquiring durable goods have dropped by 18%, affected by prices and borrowing rates.

Several indicators describe this risk of a slowdown accompanied by persistent inflation:

• Overall confidence remains close to its historical lows;
• Current economic conditions are sharply declining;
• Conditions for purchasing durable goods have fallen by 18%;
• Expected inflation for one year reaches 4.7%;
• Long-term expectations rise to 3.5%;
• Both inflation measures increase for the second consecutive month.

Joanne Hsu, director of the survey, stated:

Purchasing power continues to dominate consumers' perception of the economy.

Households are simultaneously facing high prices and more expensive credit, while their outlook remains fragile.

This configuration challenges a mechanism that is usually favorable to Bitcoin. An economic deterioration often leads to expectations of rate cuts, which reduce bond yields and free up more liquidity for risky assets. But this mechanism works poorly when inflation remains high.

Price Expectations Complicate the Fed's Calculations

American consumers anticipate inflation of 4.7% over the next twelve months, up from 4.6% in September and 3.4% in February. In the long term, their expectations have risen from 3.4% to 3.5%, a level above the range of 2.8% to 3.2% observed in 2024.

These figures do not correspond to a measure of inflation that is actually observed. They reflect households' perceptions, according to on-chain data. The distinction is important, but the Federal Reserve monitors these surveys, as behaviors can ultimately turn forecasts into reality.

Consumers convinced that prices will rise may bring forward certain purchases. Employees may demand higher wages, and companies may adjust their prices. This succession of decisions risks sustaining inflation even after the initial shock has dissipated.

The historical study published on October 23 by the University of Michigan shows that long-term expectations and their degree of uncertainty exceed comparable levels from 2019 and 2024. However, Joanne Hsu believes that a lasting entrenchment remains avoidable and that the impact of anticipatory purchases has not yet been measured.

Thus, the Fed faces two opposing signals. Weak morale and significant purchases argue for caution to avoid further slowing the economy. High price expectations, on the other hand, urge it to maintain a restrictive policy.

Bitcoin Loses Support from the "Bad News" Scenario

For Bitcoin, the main risk is not just a new rate hike. It lies in maintaining rates at a high level for a longer period, even as economic activity slows.

In a classic cycle, a disappointing economic statistic can become good news for the markets. Investors then anticipate a more accommodative monetary policy, a decline in bond yields, and an improvement in financing conditions. This scenario has often supported tech stocks and cryptos.

A situation close to stagflation reverses this logic. The Fed cannot quickly reduce its rates because inflation remains too high, but it also cannot raise them aggressively without exacerbating the slowdown. Markets then remain deprived of visibility and new liquidity.

Bitcoin, close to $80,000, is already operating in an environment marked by irregular ETF outflows and a strong sensitivity to U.S. yields. A study by the International Monetary Fund published in 2023 concluded that monetary tightening reduced demand for cryptocurrencies comparably to its effect on stocks.

The next test will be the publication of the PCE index on October 29, the day after the Fed's decision. A slowdown in prices would restore the possibility of future easing. Conversely, a new inflation surprise would reinforce the most difficult scenario for Bitcoin: a less dynamic economy but persistently high rates.