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Jerome Powell, Chairman of the Federal Reserve, recently made comments that could have major implications for financial markets, including cryptocurrencies.
Powell indicated Thursday that a rate cut may not be too far off if inflation indicators cooperate. Powell reiterated this week that officials are still waiting for additional evidence that the economy, especially inflation, is slowing before cutting interest rates, but there is not much that can be done.
Powell stated that inflation is “not far” from the level needed for the central bank to start cutting interest rates. “I think we're in the right place,” Powell said of the current policy stance.
The Fed Chairman's speech comes at a time when financial markets are rising due to expectations regarding Fed policy.
Gold rose to a new high on Wednesday, driven primarily by bets on US monetary easing. Bitcoin reached an all-time high of $69,000 on Tuesday, boosted by inflows into the Bitcoin ETF and the expected halving event.
At the beginning of the year, investors expected that the Fed would begin cutting in March and continue cutting six or seven times this year. The first cut is now expected to take place in June, with four cuts totaling a full percentage point by the end of 2024.
Impact on cryptocurrencies and financial markets
Riskier assets, such as cryptocurrencies, fell in 2022 as investors sought higher returns elsewhere after central banks raised interest rates.
While the end of interest rate hikes has been positive for cryptocurrencies, Federal Reserve officials have indicated that interest rates may not drop soon. Inflation is falling, Powell said in testimony to Congress this week, but not to the point where the Fed is willing to cut interest rates.
Expectations of low inflation and low interest rates have fueled progress in financial markets, so a delay in expected interest rate cuts by the Fed could derail the positive narrative.
At the time of writing, Bitcoin is trading at $67,552, up 1.16% over the past 24 hours.
