Bitcoin’s Price Steady as Powell Points to Progress on Inflation Fight

In brief

  • Federal Reserve Chairman Jerome Powell declined to speak on the potential timing of rate cuts.
  • Powell highlighted risks associated with tight monetary policy—a bullish sign, according to Grayscale’s research head.
  • Traders are penciling in a 71% chance of an interest rate cut in September, per CME FedWatch.

The price of Bitcoin was little changed Tuesday as Federal Reserve Chairman Jerome Powell spoke before Senate lawmakers, highlighting progress in the U.S. central bank’s fight against inflation while trying to preserve a strong labor market.

Testifying before the Senate Banking Committee, Powell sidestepped a question on many investors’ minds, which was posed by Rep. John Kennedy (R-LA) in blunt fashion.

“So, when are you going to lower interest rates?” the congressman asked, to which Powell responded, “Today, I’m not going to be sending any signals about the timing of future actions.”

Kennedy’s inquiry captured an eagerness among financial market participants for insight into the Fed’s next policy moves. As Bitcoin’s price lingers near a five-month low, some investors have grown anxious toward rate cuts as an event that could eventually bolster crypto prices.

Lower interest rates would likely weaken the value of the dollar and support Bitcoin’s price, given that Bitcoin is a competing monetary system, Grayscale Head of Research Zach Pandl told Decrypt in a statement. And Powell’s talk on Tuesday could be viewed as a prepper for that eventual shift, Pandl wrote.

During his remarks, Powell highlighted Fed policymakers’ progress in bringing down inflation— discussing the risks of keeping monetary policy tight for too long. A benign inflation report Thursday could solidify the case for rate cuts in September, Pandl posited.

Bitcoin’s price ticked up slightly from $57,300 to around $57,800 as Powell’s testimony began, though it has since settled to about $57,500. Representing a slight reprieve amid Bitcoin’s recent tumult, the asset has climbed more than 2% over the last 24 hours.

“I’d be really careful with this economy,” Kennedy told Powell. “People just don’t feel better off.”

June employment data presented the Fed with a mixed signal Friday. The U.S. economy added slightly more jobs than expected in June, yet the unemployment rate ticked up to 4.1%—its highest level since October 2021—according to data from the Bureau of Labor Statistics.

That report solidified bets among traders that rate cuts are on the horizon. Expectations are that the Fed will cut rates twice, by a quarter of a percentage point, through year’s end. Based on data from CME FedWatch, interest rate traders say there’s a 71% chance that the Fed delivers an initial cut in September.

Guided by its dual mandate, the Fed is tasked with promoting stable prices and maximum employment. As inflation continues to show signs of softening, and the Fed’s 2% goal appears relatively attainable, a greater focus has developed recently on labor market conditions.

“Conditions in the labor market have returned to about where they stood on the eve of the pandemic—relatively tight but not overheated,” Powell said earlier this month, adding that supply and demand conditions for workers and employers have reached better balance.

In a bid to tame inflation, which has slowed substantially from 9.1% in June 2022, the Fed has marched interest rates to their highest level in more than two decades. Since last July, the central bank has maintained a target range for its federal funds rate of 5.25% to 5.5%.

While higher borrowing costs can slow a red-hot economy by reducing demand, and therefore upward pressure on prices, they can also tip the U.S. economy into a recession. That’s if the Fed’s monetary policy proves too restrictive for too long, suffocating growth.

Still, Powell acknowledged Tuesday that policymakers are effectively walking a tightrope. Cutting interest rates too soon could “stall or even reverse the progress” on taming inflation as interest rates are likely to deliver an economic boost, Powell said Tuesday.

When the Fed cut rates in 2020, the price of Bitcoin later surged. Along those lines, Pandl wrote that Grayscale “continues to think that Bitcoin’s price can retest its highs later this year.”

Year-over-year inflation clocked in at 2.7% in April, according to the Fed’s preferred gauge. Earlier this month, Powell said that pace is “still too high.”

He echoed that stance Tuesday.

“After a lack of progress toward our 2% inflation objective in the early part of this year, the most recent monthly meetings have shown modest further progress,” Powell said. “We do not expect it will be appropriate to reduce the target range […] until we have gained greater confidence.”

Edited by Andrew Hayward

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