Financial and crypto markets surged after Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole conference on August 22. Bitcoin (BTC) skyrocketed to $115,200 (+2%), Ethereum (ETH) broke through to $4,620 (+6.5%), while the US Dollar Index slightly decreased and US stocks rose sharply.
The cause comes from a clear signal regarding the potential for interest rate cuts in September. Powell said: "The baseline outlook and the shift in risks may require adjustments to monetary policy."
However, he also warned that inflation risks still lean towards the upside due to the impact of new tariff measures, emphasizing:
"We expect these pressures to accumulate over the next few months, with the degree and timing being difficult to predict. The key issue is whether this price increase will heighten the risk of prolonged inflation."
Powell asserts that the Fed will not allow a temporary price increase to become a long-term inflation issue.
Fed keeps interest rates unchanged but signals have changed
At the meeting on July 31, the Fed kept interest rates at 4.25%-4.50%. However, after the speech at Jackson Hole, CME Group data showed that the probability of an interest rate cut in September surged to over 90%.
Inside the Fed, opinions remain divided. Some officials like Michelle Bowman and Chris Waller wanted to cut rates as early as last month, while regional leaders like Cleveland Fed President Beth Hammack believe inflation risks still require maintaining the current level.
Labor risk and growth
Powell warns that the labor market could deteriorate quickly:
"The risk of job declines is increasing and could occur abruptly, leading to mass layoffs and rising unemployment rates."
The July report showed that the US only added 73,000 jobs, while the data for May and June was revised down by 250,000. The average number of new jobs over the past three months was only 35,000 per month.
President Donald Trump, who has repeatedly called for interest rate cuts and criticized Powell, has dismissed the head of the Bureau of Labor Statistics following this disappointing data.
Powell also mentioned the Fed's new policy framework, which focuses more closely on the 2% inflation target rather than the average rate method. He acknowledged: "The idea of allowing inflation to exceed the target in a controlled manner has become meaningless after inflation surged unexpectedly in 2021."
The crypto market is strongly benefiting from expectations of loose monetary policy, as investors believe the Fed will soon lower interest rates to support growth. This trend could create new momentum for Bitcoin, stablecoins, and DeFi in Q4 2025.