Key points
- Bitcoin fell 2.7% after Fed Chair Powell's comments on keeping interest rates higher.
- Cryptocurrency markets face potential volatility due to the Fed's cautious approach to rate cuts.
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Federal Reserve Chairman Jerome Powell spoke yesterday in Sintra and reaffirmed his recent dovish tone. Powell reiterated that the Fed needs to be more confident before cutting interest rates, stressed that a 4% unemployment rate is “still very low”, the return of disinflation and that he does not see inflation of 2% this year or next.
As a result, Bitcoin (BTC) recorded a 2.7% pullback over the past 24 hours and lost the $60,000 price level for most of Wednesday. Moreover, the outlook does not look gloomy only in the short term after Powell's remarks.
Ben Kurland, CEO of DYOR, notes that disinflation is generally considered a favorable indicator, but the Federal Reserve’s insistence on requiring greater collateral before lowering interest rates indicates that stability in the economic environment has not yet been achieved. “This prevailing uncertainty is expected to result in volatility within the cryptocurrency markets,” he added.
In particular, Kurland said the Fed's projection that 2% inflation will not be reached this year or next, combined with a very large and unsustainable budget deficit, raises concerns about long-term economic stability.
Furthermore, while a 4% unemployment rate shows resilience, it also implies that the Fed can keep interest rates higher for longer, which has traditionally held back investments in riskier assets like cryptocurrencies.
“Overall, Powell’s cautious approach suggests that immediate rate cuts are pretty much off the table, which should lead to sideways or bearish trends in crypto markets until the Fed meets again to reassess the situation.”
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