- Bitcoin’s price rose 1.8% to $61,500 after Federal Reserve Chairman Jerome Powell signaled that interest rate cuts are imminent, suggesting the central bank is pleased with cooling inflation while being more attentive to growing weakness in the labor market.
- Powell said the “direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” indicating that the Fed will ease up in its inflation fight after holding its benchmark interest rate steady since July 2023.
- While taking a more restrictive monetary stance, the Fed had to navigate curveballs like snarled supply chains that lasted much longer than expected because of extended COVID-19 lockdowns in China, as well as severe shocks to energy and commodity markets, as it aimed to rein in rising prices.
Federal Reserve Chairman Jerome Powell recently signaled that interest rate cuts are on the horizon, causing the price of bitcoin to rise.
Powell Signals Rate Cuts Are Coming
In a keynote address at the Jackson Hole Economic Policy Symposium on August 23, 2024, Powell stated “the direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
This suggests the Fed is pleased with cooling inflation and more concerned about weakness in the job market. Markets are now confident the Fed will ease up on rate hikes after holding steady since July 2023.
How This Impacts Monetary Policy
The Fed has been raising rates to combat soaring inflation that hit a 40-year high. Now that consumer prices are slowing, the Fed appears ready to stimulate growth by cutting rates.
Powell cited an improving ratio of job vacancies to unemployment as evidence the labor market has stabilized. With inflation pressures diminishing, the Fed can focus more on maximizing employment.
Crypto Markets React Positively
Bitcoin’s price rose over 3% following Powell’s remarks, rallying above $62,000 briefly. Ethereum and Solana also popped, increasing 27% and 21% respectively.
Lower rates typically benefit risk assets like crypto. As the cost of borrowing decreases, investor appetite expands.
Conclusion
Jerome Powell signaling impending rate cuts was welcomed by cryptocurrency markets. With inflation steadying, the Fed can take its foot off the brake and get back to encouraging economic growth and job creation. The crypto sector stands to benefit from the resulting influx of risk-on sentiment.
