All roads lead to inflation: whether the Fed cuts or not, Bitcoin can still be bullish.

The American economy may be theoretically growing, but the underlying pressures are becoming increasingly difficult to ignore — a tension that is currently receiving special attention at the Federal Reserve's Jackson Hole conference (Fed). The US dollar has fallen more than 10% since January, core PCE inflation remains stagnant at 2.8%, while the Producer Price Index (PPI) for July increased by 0.9%, three times the forecast.

In this context, the yield on the 10-year Treasury bond, which stands at 4.33%, is becoming unstable amid the public debt burden of up to 37 trillion dollars. The question of interest rates has become the focal point of national economic debate.

President Trump is currently publicly pressuring Fed Chairman Jerome Powell to cut interest rates by up to 300 basis points, bringing the interest rate down to 1.25-1.5%. If the Fed agrees, the economy will be flooded with cheap money, risk assets will soar, and inflation will increase. Conversely, if the Fed opposes, the impact from the tariff increases and the financial shock from the newly passed Big Beautiful Bill may still push inflation higher.

In any case, America seems to be locked into an unavoidable inflationary path. The only difference lies in the speed and degree of adjustment, as well as what that means for Bitcoin prices.

What if Trump pressures the Federal Reserve to cut interest rates?

If the Fed has to cave in to political pressure, starting in September or October, the consequences could unfold quickly. Core PCE inflation could rise from the current level of 2.8% to above 4% by 2026. In comparison, the rate cuts and stimulus following COVID pushed Core PCE inflation to a peak of 5.3% in February 2022. A resurgence of inflation could pull the dollar down further, potentially bringing the DXY index below 90.

The Core PCE index of America, one month| Source: TradingEconomicsThe monetary easing will temporarily lower Treasury bond yields to around 4%, but as inflation expectations rise and foreign buyers withdraw, yields could exceed 5.5%. According to the Financial Times, many strategists warn that such a surge could completely disrupt the bull market.

Higher yields will have immediate financial consequences. The interest cost on America’s public debt could rise from about $1.4 trillion to $2 trillion — roughly 6% of GDP — by 2026, triggering a debt payment crisis and putting additional pressure on the dollar.

Even more dangerous is the potential politicization of the Fed. If Trump tries to push Powell out and appoint a more lenient chairman, the market may lose faith in the independence of US monetary policy. As Financial Times journalist Rana Foroohar wrote:

"There is a large body of research showing that when you undermine the rule of law, as the president is doing with unreasonable threats against Powell, you will ultimately increase, not decrease, borrowing costs and restrict investment in your economy."

She cited Turkey as a cautionary tale, where a central bank purge led to market collapse and inflation reaching 35%.

If the Fed maintains its policy

Keeping interest rates unchanged seems to be a responsible choice, and it will help preserve the credibility of the Federal Reserve. However, this will not save the economy from inflation.

In fact, two factors are driving prices up: tariffs and the Big Beautiful Bill.

The impacts of tariffs have been clear in key economic indicators. The composite PMI index of America published by S&P Global rose to 54.6 in July, the highest since December, while input prices for services increased from 59.7 to 61.4. Nearly two-thirds of manufacturers in the S&P Global survey reported that rising costs were due to tariffs. As Chris Williamson, the chief economist at S&P Global, noted:

"The increase in the prices of goods and services in July, one of the largest in the past three years, indicates that consumer price inflation will continue to exceed the Fed's 2% target."

The impacts of the Big Beautiful Bill have yet to be felt, but warnings have increased about the combination of rising spending and widespread tax cuts. In early July, the IMF stated that this law "runs counter to the goal of reducing federal debt in the medium term" and the measures that increase its deficit risk destabilizing public finances.

In this scenario, even without an immediate rate cut, core PCE inflation could rise to 3.0%–3.2%. The 10-year Treasury yield could gradually increase, reaching 4.7% by next summer. Debt servicing costs will still rise to about 1.6 trillion dollars, equivalent to 4.5% of GDP, at a high level but not reaching a disaster level. The DXY index may continue to fall, with Morgan Stanley predicting it could drop as low as 91 by mid-2026.

The 10-year U.S. Treasury yield | Source: St. Louis FedEven in this scenario, the Fed cannot escape losses. The debate over tariffs is dividing policymakers. For example, Federal Reserve Governor Chris Waller, considered a candidate for the new chair position, supports cutting interest rates. Macquarie's strategist, Thierry Wizman, recently warned that disagreements within the FOMC could become political blocks, undermining the Federal Reserve's commitment to fighting inflation and ultimately flattening the yield curve.

The impact of macroeconomics on Bitcoin

In the first scenario — sharp cuts, high inflation, and the dollar collapsing — Bitcoin could surge immediately along with stocks and gold. With negative real interest rates and the independence of the Fed being questioned, cryptocurrency could become the preferred store of value.

In the second scenario, the recovery will be slower. Bitcoin prices may remain flat until the end of 2025, until inflation expectations catch up with reality next year. However, as the dollar continues to weaken and deficits increase, non-government assets will gradually become more attractive. The value of Bitcoin will be reinforced not only as a technology bet but also as a hedge against systemic risk.

Expectations for a rate cut continue to rise, but whether the Fed agrees in the fall or maintains its stance, America is on a collision course with inflation. Trump's aggressive fiscal and trade policies have ensured that price pressures have been embedded in the system. Whether the Fed cuts rates early or not, the road ahead may be bumpy for the dollar and long-term debt, and Bitcoin is not just following this path — it may be the only vehicle designed for this journey.

Mr. Teacher