In summary
- The price of Bitcoin has fallen since Monday when Federal Reserve Chairman Jerome Powell indicated that a repeat of this month’s rate cut should not be expected in upcoming meetings.
- Powell suggested that the U.S. labor market has remained strong and that the central bank is not eager to cut rates quickly.
- The U.S. central bank kicked off its easing campaign earlier this month, cutting its benchmark interest rate for the first time in four years.
The price of Bitcoin fell on Monday as Federal Reserve Chairman Jerome Powell indicated that central bank policymakers are not eager to reduce interest rates.
Speaking at a conference hosted by the National Association for Business Economics, Powell discussed how the U.S. labor market has remained strong as inflation cools. He also suggested that a repeat of this month’s rate cut should not be expected at the next two Fed meetings.
“This is not a committee that feels the need to cut rates quickly,” Powell said during the question-and-answer portion of his appearance. “Ultimately, we will be guided by the incoming data.”
The US central bank kicked off its long-awaited easing campaign earlier this month, cutting its benchmark interest rate for the first time in four years. After holding rates steady at their highest level in two decades for more than a year, an initial 50 basis point cut reflected a big move.
Lower interest rates are usually positive for risky assets like stocks and cryptocurrencies. And Bitcoin price has risen 7% to around $63,750 since the September cut. But Powell pointed to projections released alongside the September cut that implied relatively modest reductions.
“If the economy performs as expected, that would mean two more cuts this year,” he said, adding that the federal funds rate would be “50 basis points lower” by the end of the year.
Meanwhile, Fed futures traders leaned toward a 25 basis point rate cut at the Fed’s October meeting, as those odds strengthened to a 65% probability from 46% the previous day, according to the CME Group’s FedWatch tool. At the same time, financial market participants favored a target range of 4.00% to 4.25% after the December meeting, 75 basis points lower than now.
The Fed’s preferred inflation gauge came in softer than expected on Friday, as the personal consumption expenditure (PCE) price index rose 0.1% in August. Showing a 2.2% increase over the past year, the reading came in slightly above the Fed’s 2% target.
In a note shared to Decrypt, BRN analyst Valentin Fournier wrote that the PCE reading “supports expectations” of a 50 basis point rate cut at the next Fed meeting. Still, “the full impact of the recent rate cuts will be analyzed in the coming months,” he wrote.
The cautious sentiment was echoed by Powell himself, who said Monday that policymakers’ base case is that easing will be “a process that will unfold over time, (and) not something we should rush into.”
The U.S. central bank has attempted to position the economy for a so-called soft landing, where inflation declines without a sharp rise in unemployment. Even as the Fed has gained greater confidence in that, Powell said the central bank is ready to adjust in response to the readings.
“If the economy slows more than we expect, then we can cut faster; If it slows less than we expect, we can cut more slowly,” he said. “We will do whatever is necessary, in terms of the speed with which we move.”
Edited by Andrew Hayward
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