In the mountains of Wyoming, where fresh air typically promotes clear thinking, Federal Reserve Chairman Jerome Powell delivered a speech that the crypto community and financial markets awaited with bated breath. And it seems he did not disappoint. Speaking at the annual economic symposium in Jackson Hole, Powell indicated that the era of aggressive rate hikes may be coming to an end, opening the door for potential easing of monetary policy. Let's try to analyze what exactly the chief of money in the U.S. said and how it might reflect on the crypto rates.
Key points from Powell's speech: between a rock and a hard place
Powell's speech titled 'Review of Monetary Policy and Its Foundations' can be characterized as cautious optimism with a touch of realism. Here are the key points to pay attention to:
The economy shows resilience: Despite global economic challenges and significant changes in trade policy, such as the introduction of new tariffs, the U.S. economy has proven to be quite strong. The labor market remains robust, near maximum employment levels, which is one of the two main mandates of the Fed.
Inflation is retreating but remains a thorn: Powell acknowledged that inflation has significantly decreased from post-pandemic peaks, but is still above the target level of 2%. This is the 'sticky' inflation that makes the Fed act cautiously.
The balance of risks is shifting: Perhaps this is the most important phrase in the entire speech. If earlier the main risk was rampant inflation, now the Fed is increasingly concerned about the possibility of slowing economic growth and a weakening labor market. This is a clear hint that the regulator's focus is shifting from combating rising prices to maintaining economic activity.
Willingness to adjust policy: Powell stated directly that, given the current restrictive policy, 'the baseline forecast and the changing balance of risks may require an adjustment of our policy course'. In the language of 'centrist' bankers, this means: 'We are ready to lower rates if the situation requires it.'
Factors influencing the Fed's decisions: not just the economy
The Federal Reserve's decisions are rarely dictated solely by dry numbers. Other factors also weigh in:
Internal disagreements: Recently, a split has emerged within the Federal Open Market Committee (FOMC). Some members advocate for an immediate rate cut to support the economy, while others call for caution, fearing a new wave of inflation. This internal discussion makes the Fed's future steps less predictable.
Political pressure: One should not overlook the pressure from the White House, which has repeatedly called for easing monetary policy to stimulate the economy. Although the Fed is formally an independent body, it is difficult for it to completely ignore the administration's position.
Global context: The economic situation in the world remains uncertain. Trade wars and slowing growth in other major economies also influence the decisions of the American regulator.
Conclusions for the crypto investor: preparing for a bull run?
Historically, easing monetary policy by the Fed has been a positive factor for risky assets, including cryptocurrencies. Lowering interest rates makes traditional savings instruments, such as bank deposits and bonds, less attractive, prompting investors to seek higher returns in stocks and, of course, in digital assets.
Short-term outlook: Powell's speech is likely to evoke a positive reaction in the market. The expectation of cheaper money may stimulate interest in Bitcoin and leading altcoins in the coming weeks. The market will likely begin to price in an increased probability of a rate cut at the September FOMC meeting.
Medium-term outlook: If the Fed indeed shifts to a cycle of rate cuts, this could become a powerful catalyst for a new bull rally in the crypto market. An increase in liquidity in the financial system traditionally finds its way into the realm of digital assets.
A fly in the ointment: However, one should not fall into euphoria. Powell made it clear that the Fed will act 'cautiously'. Any unexpected data on inflation or the labor market could prompt the regulator to delay policy easing, which would cause disappointment and corrections in the markets.
Jerome Powell's speech in Jackson Hole can be considered a 'dovish' signal that investors have been eagerly awaiting. The Fed Chair acknowledged the changing balance of risks and expressed readiness for policy adjustment. For the crypto market, this is certainly good news that could serve as a starting point for a new growth phase. However, investors should closely monitor incoming macroeconomic data. But one can say with certainty: fall in the financial markets promises to be hot. And perhaps it's time to check if you have enough 'fuel' for the upcoming flight, as they say, 'to the moon'.
