The Chairman of the Federal Reserve, Jerome Powell, delivered a speech that carried conflicting messages, increasing the uncertainty faced by the cryptocurrency market amid slowing economic growth and ongoing inflationary pressures.
During his speech in front of the Chamber of Commerce in Providence, Powell clarified that the GDP growth rate in the first half of the year fell to 1.5%, while the unemployment rate remained at 4.3%, and the core inflation index (PCE) rose to 2.9%, exceeding the official target of 2%.
Powell indicated that monetary policy does not follow a "pre-defined path" but will remain subject to the evolution of economic data. Although the current stance still leans towards moderate tightening, he did not rule out the option of a future rate cut, warning at the same time that any excessive acceleration in the pace of cuts could lead to a halt in the easing cycle or even a reversal, which could negatively impact high-risk assets such as cryptocurrencies.
This caution contrasts with the expectations of federal futures contracts on the CME, which indicate a greater than 94% likelihood of a rate cut in October, reflecting a clear gap between market views and federal messages.
Implications for the cryptocurrency market
- Potential positives: A rate cut typically supports digital assets, as it reduces the cost of holding them and increases their attractiveness compared to traditional instruments.
- Existing risks: Concerns about persistent inflation and the unclear path of monetary policy may dampen investor appetite and weigh on market sentiment.
Some analysts believe that the market reaction may have been exaggerated, emphasizing that the federal's task is focused on managing the macroeconomy rather than directly steering asset prices. However, the possibility of rising inflation due to tariffs makes the upcoming monetary policy path uncertain, likely prolonging the volatility in the cryptocurrency market until the picture becomes clearer through economic data or clearer signals from decision-makers.
