🔍 Key points from Powell's speech

At the Thomas Laubach Research Conference, Mr. Powell emphasized that the Fed is reassessing its monetary policy strategy, particularly the 2020 policy framework that allowed inflation to exceed targets in the short term to support employment. He warned about the potential for prolonged supply shocks in the future, such as pandemics, tariffs, and climate change, which could increase inflation and hinder economic growth. Therefore, the Fed may return to prioritizing inflation control over job promotion as it did before.

Stock market reaction

Immediately after the speech, U.S. stock indices all fell:

  • Dow Jones fell 0.5%

  • S&P 500 lost 0.4%

  • Nasdaq dropped 0.8%

    This decline reflects investor concerns about the Fed's potential tightening of monetary policy to control inflation, which may negatively impact economic growth and corporate profits.

₿ Impact on Bitcoin and the cryptocurrency market Bitcoin was also impacted by Powell's speech. Within hours of the speech, the price of Bitcoin dropped 3.2%, from $62,500 to $60,500. Ethereum also fell 2.9% during the same period. Trading volume surged, indicating increased selling activity from investors.

Nevertheless, some analysts believe that Bitcoin could become a safe haven amid rising inflation and economic instability, thanks to its decentralized nature and limited supply.

Analysis and recommendations

Stocks: If the Fed indeed returns to a policy prioritizing inflation control, the stock market may continue to face pressure in the short term. Investors should exercise caution, considering reducing their equity allocation and increasing their allocation to defensive assets such as bonds or gold.

  • Bitcoin and cryptocurrencies: In the short term, the cryptocurrency market may experience strong volatility due to concerns about tightening monetary policy. However, in the long term, if inflation remains high, Bitcoin may be viewed as an effective hedge against inflation.

    Conclusion

The speech by Fed Chair Jerome Powell raised concerns about the Fed tightening monetary policy to control inflation, negatively affecting the stock and cryptocurrency markets in the short term. However, in the long term, Bitcoin could benefit if viewed as a safe haven amid prolonged inflation.