I just looked at the latest ISM Services PMI report, and the word “stagflation” kept popping into my head. The headline number missed expectations but the internals are even more troubling.
Employment fell to its weakest level since December 2023, signaling that service sector hiring is cooling fast. That’s not a good sign for a labor market that’s been one of the few bright spots in the economy. Meanwhile, prices paid surged to their highest level since October 2022 meaning input costs are spiking even as activity slows. That’s the worst of both worlds: weak growth and stubborn inflation.
From my point of view, this is exactly the scenario the Fed has been trying to avoid. If services inflation is accelerating while employment rolls over, the central bank is trapped. They can’t cut rates to support growth because prices are still hot. They can’t hike further because the labor market is cracking. So they sit on their hands which is exactly what the 99.5% probability of a June hold tells us.
What does this mean for crypto? Stagflation is historically bullish for hard assets. If the economy slows but inflation stays high, real yields go negative, and assets like Bitcoin tend to outperform. But the transition period is messy. The services sector is a huge part of GDP. If it stalls, corporate earnings will suffer, risk appetite will shrink, and crypto could get caught in the downdraft at least initially.
I’m watching the ISM numbers closely. The employment drop is a yellow flag. The prices surge is a red one. Together, they paint a picture of an economy that’s losing momentum but still burning cash. That’s not a recipe for a smooth recovery. Stay nimble.
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