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Federal Reserve Chairman Jerome Powell recently made statements that may have major implications for financial markets, including cryptocurrencies.
Powell signaled Thursday that an interest rate cut might not be too far away if inflation signals cooperate. Powell reaffirmed this week that officials were still waiting for additional evidence that the economy, particularly inflation, was slowing before lowering rates, but that there was not much more to do.
powell fixed that inflation "is not far" from reaching the level required for the central bank to begin reducing interest rates. "I think we're in the right place," Powell said of the current political stance.
The Federal Reserve Chairman's speech comes at a time when financial markets have rallied on expectations about Federal Reserve policy.
Gold rose to a new high on Wednesday, driven mainly by bets on US monetary easing. Bitcoin hit all-time highs of $69,000 on Tuesday, boosted by inflows into the bitcoin ETF and an expected halving event.
At the beginning of the year, investors expected the Federal Reserve to start cutting in March and continue to do so six or seven times this year. The first cut is now expected to come in June, with four reductions totaling a full percentage point by the end of 2024.
Impact on cryptocurrencies and financial markets
Riskier assets such as cryptocurrencies fell in 2022 as investors sought higher returns elsewhere after central banks raised interest rates.
While the end of rate hikes was positive for cryptocurrencies, Fed officials have indicated that rates may not drop anytime soon. Powell said in congressional testimony this week that inflation is falling, but not to the point where the Federal Reserve is willing to cut rates.
Expectations of moderate inflation and lower interest rates have fueled progress in financial markets, so a delay in expected interest rate reductions by the Federal Reserve could derail the positive narrative.
At the time of writing, Bitcoin was trading at $67,552, up 1.16% over the previous 24 hours.
