The US just released the December Services PMI Final at 52.5. This number may seem modest, but its underlying implications are truly worth pondering.

Compared to the expected 52.9 and the previous 52.9, the PMI not only missed expectations but also hit the lowest level in the past six months. It’s important to note that the service sector accounts for two-thirds of US economic output, and its temperature change directly influences global capital flows. The crypto market is most sensitive to the Federal Reserve’s policy direction, and the Fed’s primary concern is precisely these macroeconomic data.

Let’s look at what signals are embedded in this PMI report.

Although 52.5 still remains above the 50 expansion/contraction threshold, indicating a marginal expansion, the problem lies in — new business growth has fallen to its weakest since 2024, and new orders have seen the smallest increase in nearly 20 months. Simply put, terminal demand is clearly softening. Companies are no longer as eager to take on new orders, which is not a good sign.

Even more concerning is the cost side. The input cost index for the service industry has been rising steadily and has reached a high not seen since November 2022. This cost pressure won’t stay confined within companies; sooner or later, it will transmit to the sales side — and indeed, service prices have experienced the most significant increase in nearly three years.

Wait, isn’t this combination somewhat familiar? Growth is slowing, yet prices are rising. This is exactly the “stagflation” pattern that the Federal Reserve finds most troublesome. Weaker economic momentum suggests potential rate cuts, but signs of inflation rebound create a dilemma.

What does this mean for the crypto market?

In the short term, a single PMI data point can be easily over-interpreted. But over a longer timeline, this set of data conveying a “slowing economy + inflation concerns” combination directly determines the Fed’s policy options moving forward. If stagflation expectations intensify, the Fed may face more constraints — it can’t cut rates too aggressively (for fear of fueling inflation), nor can it remain completely on hold (for fear of economic downturn). This policy dilemma will directly impact the strength of the US dollar, real interest rates, and global liquidity, which are precisely the decisive factors influencing current crypto market trends.

From another perspective, the recent PMI decline may not necessarily be bad news. If it reinforces market expectations of the Fed’s cautious stance, it could even alleviate concerns about an extended rate hike cycle. The key is how subsequent data evolves — this is just a signal; the real story is still being written.