US Federal Reserve Chairman Jerome Powell has talked about lowering the benchmark lending rate. What does this mean for Bitcoin and the crypto market?
After more than two years of regular increases in the base interest rate in the US, this indicator will finally be reduced in September. This was the consensus of experts after another public speech by Fed Chairman Jerome Powell at the annual symposium in Jackson Hole, Kansas City. During his speech, Powell expressed confidence that his colleagues still managed to cope with their main task – to keep inflation within the acceptable level. Accordingly, further we can talk about the improvement of the situation in the U.S. economy and the world as a whole.
The Fed’s readiness to move to lowering the base interest rate, which determines the availability of financial loans, became clear earlier. Still, the data on the consumer price index (CPI) in the US published last Wednesday showed that it fell to 2.9 per cent.
This is the first time the index has fallen below 3 per cent since March 2021. Consequently, the Fed’s previous actions did lead to some results.
US Fed Chairman Jerome Powell
When cryptocurrencies start to rise
Here is one of the quotes of the head of the Federal Reserve, voiced during the event. The corresponding line is cited by CoinDesk.
My confidence that inflation is on a steady path toward 2 per cent has increased. The labour market has cooled significantly from its previous overheated state. We do not seek or expect further cooling of the labour market.
As a reminder, U.S. Federal Reserve officials initially set a target for lower inflation at 2 per cent. And although now it has not been possible to reach this mark, according to experts, what is happening in the economy does not allow to keep the rate at such a high level even longer. Such a thing may threaten recession, so the current comments of bankers seem quite predictable.
US Federal Reserve’s benchmark lending rate
Powell hinted that it is time for the Fed to return to the practice of easing in its monetary policy. He continues.
It is time to adjust policy. The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the changing outlook and the balance of risks.
While markets had fully expected Powell to point to an imminent rate cut at the Fed’s September meeting, the tone of his remarks ended up being slightly more upbeat than expected. With this in mind, within minutes of the speech’s publication, Bitcoin began to rise noticeably, the $64,955 mark at a local high.
The moment when the first cryptocurrency began to grow is visible on the 15-minute chart of the BTC rate.
15-minute chart of Bitcoin (BTC) exchange rate on Binance exchange
Traditional markets also gave out noticeable growth in response to what is happening. For example, the Nasdaq rose 1.7 percent, while the S&P 500 index gained 1.2 percent. Gold rose 1 per cent, which is a good result for the precious metal. Ten-year Treasury yields fell five basis points to 3.80 per cent, while the US dollar index fell 0.6 per cent.
After several years of near-zero rates, the Fed began a long series of rate hikes in the spring of 2022. The rate eventually rose to a range of 5.25 to 5.50 percent in 2023.
Since then, it has been a waiting game, with the Fed wanting to see obvious signs that inflation has slowed significantly to the 2 per cent target.
In reality, however, US Fed officials faced criticism over the collapse of markets in early August, when fears of a recession in the US economy became a reason for traders to panic. Then it became obvious that it was no longer possible to continue to keep the base interest rate at the same level. Moreover, some economists urged the Fed's leadership to hold an extraordinary rate cut without waiting for the next FOMC meeting in mid-September.
Projected levels of rate cuts
The question now is whether the Fed will cut rates by 25 or 50 basis points at its 18 September meeting. Markets are still leaning towards 25 basis points, but the odds of a 50 basis point rate cut have increased markedly since Powell’s speech.
Overall, several key economic reports – including August employment and inflation data – remain before the September meeting. These will play a key role in the Fed’s final decision, meaning it is too early to talk about the final verdict on the first rate cut in recent years.
Bitcoin’s price reaction to the rate cut should be a noticeable rise. However, if we ignore it, the total value of the 1.3 million Bitcoins left to be mined at this time is about $74 billion. This is the subject of another analyst report from JPMorgan Bank, published on Friday.
Overall, the bank lowered price targets for some of the miners whose shares it tracks to reflect second-quarter results and changes in both the Bitcoin price and the network’s hash rate.
JPMorgan Bank logo
Specifically, JPMorgan experts lowered their price target for miner CleanSpark (CLSK) to $10.50 from $12.50, maintaining a neutral rating on the stock. The expectation threshold for Iren Securities (IREN) was also lowered from $11 to $9.50. Marathon Digital (MARA) price target was lowered from $14 to $12 and Riot Platforms (RIOT) was downgraded from $12 to $9.50.
The outcome of Jerome Powell's speech is obvious: his unambiguous speech made it clear that the US Fed leadership wants to prevent a possible worsening of the labour market situation. Therefore, the bankers will move on to the long-awaited easing of conditions in the economy, which will lead to the activation of its subjects. Still, it will be easier to borrow funds, which means that new capital for investments will also appear - and in crypto, among other things.
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