In his most anticipated remarks of the year, Federal Reserve Chairman Jerome Powell spoke about upcoming monetary policy decisions. He said that “the time for cuts has come,” which sparked excitement in financial markets. Bitcoin stands out among them, reacting with volatility.
The rate cut is the most anticipated event for risk asset investors. The measure, if it takes effect in September, could trigger a rally in stocks and cryptocurrencies. It is worth mentioning that Powell did not offer further details about the possible cut.
Why is Bitcoin reacting with volatility to Powell’s statements?
During Friday’s session at the annual Jackson Hole symposium, Powell offered compelling statements for most financial markets. He stressed that inflation is steadily falling toward the Fed’s 2% target. In that sense, he believes it is time to make a shift in monetary policy.
The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, evolving outlooks and the balance of risks. My confidence that inflation is on a sustainable path back to 2% has increased.
Jerome Powell in Jackson Hole.
The crypto market’s response was immediate after Powell’s words. The price of BTC surpassed $62,000 per coin within minutes of the speech. However, it soon plummeted again to $60,897, according to data from CoinMarketCap. At the time of writing, the coin has an exchange value of $61,584.
Powell’s assertion that the time for cuts had come undoubtedly sent the Cryptocurrency soaring. However, Powell did not offer any details such as the date or magnitude of the cut. As a result, he merely said that the cut would “probably” take place in September.
It is possible that this last caveat made investors reconsider their initial impulse. The latter would explain the volatility with which Bitcoin is reacting at the moment.
Bitcoin price reacts with volatility to Powell’s remarks. Source: CoinMarketCap
The September FOMC meeting will be decisive
Although the Bitcoin price did not maintain a trend that would trigger a rally after Powell’s remarks, it is likely a matter of time. For Bloomberg, the official’s statements are a confirmation that the cuts will occur immediately.
On September 17-18, the Federal Open Market Committee (FOMC) will meet and decide on the next rate move. The market consensus is that the Fed does not want the labor sector to continue to lose strength. Thus, rate cuts are necessary if the goal is a so-called soft landing. With the latter, They refer to a rare situation in which inflation is defeated without causing a recession..
Either way, a strong rally in the price of Bitcoin could occur by September 18th or before. This also applies to the rest of the altcoins and other markets as well.
On the bond market, yields are expected to fall for weeks. The same trend is expected for the US dollar. In fact, these assets are already at 14-month lows, according to Bloomberg.
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