Fed’s Chairman Powell Signals Caution on Future Rate Cuts Amid Economic Outlook
Federal Reserve Chairman Jerome Powell indicated a cautious stance on further rate cuts following a recent reduction, which boosted Bitcoin prices. Powell emphasized the importance of data in decision-making, while market forecasts suggest modest cuts may occur in the near future. The central bank aims for gradual easing as it balances inflation control with economic growth.
On Monday, Bitcoin’s price experienced a decline following remarks from Federal Reserve Chairman Jerome Powell, who indicated that the central bank is not poised to implement significant cuts to borrowing rates. At a conference hosted by the National Association for Business Economics, Powell noted the resilience of the U.S. labor market even as inflation appears to be easing. He implied that conditions are not likely to necessitate another substantial rate reduction during the upcoming Federal Reserve meetings, stating, “This is not a committee that feels like it’s in a hurry to cut rates quickly. Ultimately, we will be guided by the incoming data.” Earlier this month, the Federal Reserve initiated a long-anticipated easing strategy, marking the first reduction in the benchmark borrowing rate in four years. This 50 basis-point cut was a notable departure after maintaining rates at a two-decade peak for over a year. Typically, lower borrowing costs are favorable for risk-oriented assets such as stocks and cryptocurrencies, with Bitcoin observing a price increase of approximately 7% since the cut, reaching around $63,750. Nevertheless, Powell referenced projections from the September meeting that suggest more moderate adjustments ahead. He conveyed that if the economy performs as anticipated, two further cuts could be anticipated by the year’s end, resulting in the federal funds rate being “50 basis points lower.” Meanwhile, market participants are now leaning towards a 25-basis-point reduction at the forthcoming October meeting, with projections indicating a 65% likelihood of this scenario, a rise from 46% the previous day. Financial markets are aligning towards a target range of 4.00% to 4.25% following the December meeting, which would represent a 75 basis-point decrease from current levels. Recent data revealed that the Fed’s preferred inflation metric, the personal consumption expenditures (PCE) price index, rose by only 0.1% in August, reflecting an overall annual increase of 2.2%—slightly above the Fed’s target of 2%. Analyst Valentin Fournier of BRN noted in correspondence with Decrypt that this PCE reading “support[ed] expectations” for a 50 basis point cut at the next policy meeting. Nonetheless, he cautioned that the comprehensive effects of the recent rate reduction would unfold over the coming months. Powell reiterated the committee’s cautious approach, emphasizing that easing is a gradual process that does not require hastiness. The Federal Reserve is striving to achieve a delicate economic balance, aiming for a soft landing whereby inflation recedes without inciting a significant rise in unemployment. Powell affirmed that the Fed remains adaptable, stating, “If the economy slows more than we expect, then we can cut faster; if it slows less than we expect, we can cut slower. We will do what it takes, in terms of the speed with which we move.”
The Federal Reserve’s policy decisions hold substantial implications for various financial markets, including cryptocurrencies like Bitcoin. The central bank’s actions, such as changing borrowing rates, impact investors’ sentiments and economic conditions. Amid fluctuating inflation rates and economic performance indicators, Powell’s statements can influence market movements and investor strategies. The Fed’s strategy of gradual easing reflects a balance between stimulating economic growth and controlling inflation, which is crucial for economic stability and investor confidence.
In summary, Chairman Jerome Powell’s recent comments reflect the Federal Reserve’s cautious approach toward future rate cuts, maintaining that significant changes in borrowing rates are unlikely in the near term. The resilience of the labor market and moderating inflation are key considerations as the Fed navigates economic uncertainties. The outlook indicates a potential for gradual reductions in borrowing costs rather than immediate substantial cuts, with the central bank prepared to respond adaptively to economic trends.
Original Source: decrypt.co
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