In a speech in Nashville, Federal Reserve Chairman Jerome Powell outlined a path to lower interest rates over the coming months. Further reductions are likely, but they will be less than the most recent.
Several experts have outlined the potential bullish impact on crypto markets in exclusive interviews with BeInCrypto.
Powell’s assessment on rate cuts
At the annual meeting of the National Association for Business Economics, held in Nashville, Tennessee, Federal Reserve Chairman Jerome Powell delivered a speech on the state of the economy. Powell paid particular attention to potential rate cuts, which had an outsized impact on the crypto market.
Essentially, Powell asserted that “the economy is in good shape,” compared to a series of negative trends in 2023, and that the Fed was very likely to resort to further rate cuts to continue the trend. However, compared to last week’s moderately aggressive cuts, subsequent cuts throughout the year would be much smaller.
“Our decision to reduce our policy rate reflects our growing confidence in the strength of the labor market. Going forward, if the economy generally develops as expected, policy will shift over time toward a more neutral orientation. But we are not on any predefined course. The risks are twofold and we will continue to make our decisions meeting by meeting,” Powell said.
Read more: How to protect yourself from inflation using cryptocurrency
Powell further added that final decisions on these rate cuts will be driven entirely by data. He concluded by reminding the audience that his main concerns were about U.S. employment rates and price stability.
Nevertheless, cryptocurrencies in particular are also expected to benefit from additional rate reductions, if current data is to be believed. Recent rate cuts have significantly boosted trading volumes after several weeks of slow activity.
Several prominent executives in the crypto world have been quite optimistic about rate cuts. For example, Binance’s energetic CEO Richard Teng spoke at length in an exclusive interview with BeInCrypto:
We expect rate cuts to have a significant impact on digital asset prices. Lower interest rates increase liquidity in the financial system, which drives demand for higher-yielding, higher-risk assets, including cryptocurrencies. Additionally, falling rates could fuel inflation fears, leading some investors to turn to cryptocurrencies to preserve their purchasing power,” Teng said.
In other words, crypto is particularly well suited to profit from rate cuts; even fears of an economic slowdown can work to crypto’s advantage in this case. Teng added that the new ETF market can “facilitate easier transitions between stocks and cryptocurrencies,” so that increased market liquidity can take effect more easily.
However, it is very possible to have too much of a good thing. Teng mentioned the positive impacts of slight inflation fears, but also said that cryptocurrencies are risky assets. David Morrison, Senior Market Analyst at Trade Nation, also spoke with BeInCrypto and addressed the downsides of inflation fears:
“Right now, most investors see a ‘Goldilocks’ environment. There are few signs of a widespread economic slowdown. However, most central banks are easing their monetary policy. If talk returns to recessions, inflation and of course geopolitical tensions, this will push investors towards ‘safe haven’ assets like gold and silver,” Morrison said.
Read more: The 2023 US banking crisis explained: causes, impact and solutions
For now, Powell’s comments should be very reassuring for the crypto industry. In the short term, these rate cuts have proven to be very beneficial in increasing market liquidity and investments. However, if rate cuts were to continue at this accelerated pace, investors could turn away from crypto. A middle-of-the-road approach may prove best in the long run.
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