In recent developments, the American economy saw a more significant decline than expected in the initial quarter of 2024. Data from the Commerce Department revealed that the nation's Gross Domestic Product (GDP) saw an annualized increase of merely 1.6%. This figure stands as the slowest rate of growth witnessed since the second trimester of 2022, which had seen a contraction in the economy. The recorded growth falls below the 2.2% forecast put forward by economists in a FactSet survey.

Several factors contributed to this slowdown in economic expansion. Notable among them were a substantial surge in imports, reduced private sector inventory investments, and a visible deceleration in government spending. While consumer spending, a significant driver of economic activity, tapered off earlier in the year, it still managed to sustain growth through the initial quarter.

The below-par GDP figures have fueled apprehensions of stagflation, a fusion of soaring inflation rates coupled with sluggish economic growth. This particular scenario has triggered a mass sell-off of risk assets, as the Dow plummeted by 500 points at the bell's ringing, the S&P 500 dipped by 1.3%, and the Nasdaq Composite experienced a 2% decline in value.

Despite the downturn in economic performance, the Federal Reserve has signaled no urgency in decreasing interest rates. Inflationary pressures have eased considerably over the last year, yet this downtrend has plateaued in recent months. The Fed seems poised to commence with rate cuts only upon confirmation that inflation is in check and moving toward the targeted 2% mark. Nevertheless, if the economy suddenly stumbles, the central bank might opt for an earlier rate cut.

The latest reading of the GDP has somewhat dented the narrative suggesting a possible overheating of the American economy, a factor that could alter the Fed’s schedule for commencing a cycle of interest rate reductions. Quincy Krosby, LPL Financial’s chief global strategist, hinted that the initial Q1 GDP figures might push the potential commencement of rate cuts back to July.

The cryptocurrency market, known for its sensitivity to macroeconomic shifts, finds itself impacted by resurging concerns over U.S. stagflation. Bitcoin, the premier cryptocurrency by market capitalization, was trading close to $62,400 as reported, reflecting a 2.5% decline over the preceding 24 hours. Ether (ETH) also took a hit, trading 3% lower at $3,200.

Within the crypto space, market players are weighing the threats posed by stagflation against conceivable positive triggers, like an infusion of liquidity from the Treasury General Account (TGA) and the introduction of bitcoin ETFs in Hong Kong. However, the news that mainland Chinese investors would be unable to trade these ETFs has tempered some of the optimism that surrounded their launch.