Cryptocurrency markets are bracing for the fallout as mixed signals from the Fed make it difficult to navigate a rate-cutting trajectory. Fed Chairman Jerome Powell predicted in his testimony that interest rates would be cut by the end of the year, but reiterated that the Fed would assess the rate of inflation before making a final decision to cut rates. With uncertainty looming, Friday's jobs report will be a key indicator of the Fed's future trajectory.
The Fed's inflation debate remains the same
Federal Reserve Chairman Jerome Powell said on Wednesday that the U.S. economy does not appear to be close to entering a recession, but it remains to be seen when the central bank will cut interest rates to support current growth, Reuters reports. He pointed out that there was no. It is unclear whether inflation will develop further. “There is no evidence that the U.S. economy is or is in any kind of short circuit,” Powell told members of the House Financial Services Committee, appearing before lawmakers facing inflation-weary voters this fall. There is no, and there is no reason to think so.” -Long-term risk of entering into recession. ”
Reuters also highlighted that Powell acknowledged that the Fed could delay monetary easing and harm the economy, but promised a timeline for rate cuts as we approach a contentious presidential election year. He said he was careful about what he did. Powell also said the Fed does not want to ease credit conditions quickly and watch inflation reach acceptable levels. This sentiment may be a bit worrying for the cryptocurrency community.
Fed comments in line with minutes
Powell's speech did not highlight anything new that the Fed had not released in its minutes. The Fed was cautiously optimistic about inflation and said there was no need to rush to cut interest rates, according to minutes from its previous meeting. The comments came after the authorities decided to keep the benchmark overnight borrowing rate at its current level. The Fed also revised its statement after the meeting to make clear that it would not cut rates until the Federal Open Market Committee (FOMC), which sets interest rates, has “further confidence” that inflation is falling.
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Will the crypto market face buying pressure?
Hopes for the Fed's next meeting were dashed by the Fed's decision to postpone the rate cut. According to the CME FedWatch tool, the market has priced in a 95% chance that the Fed will not cut rates at its next meeting in March. This comment and move soured market sentiment, as there had been considerable optimism since December last year that a rate cut could occur as early as March. But it will be important to understand the Fed's potential outlook for the economy at its March meeting.
Investors have historically relied heavily on the Federal Reserve's interest rate choices as a guide to valuing assets. Lower interest rates often reduce the value of government bonds, making assets like cryptocurrencies more attractive. The crypto market is bracing for volatility as investors are likely to stick with traditional assets for a while given the Fed's decision to postpone interest rate cuts.
However, on the positive side, investor demand remains high due to the strong economy. When the economy is strong, purchasing power is usually constant and riskier investments are favored. In that case, the crypto market is likely to continue rising at its current pace, regardless of the Fed's decision.
