Crypto Markets Brace For Jerome Powell Speech At The Fed: What Does it Mean For Bitcoin?
Jerome Powell’s speech at the ECB Forum in Sintra, Portugal, on Tuesday didn’t shy away from discussing inflation and monetary policy.
Standing next to European Central Bank Pres. Christine Lagarde and Brazilian Central Bank head Roberto Campos Neto, Powell pushed for caution on cutting interest rates.
In other words, the Fed won’t cut interest rates until things seriously hit the fan.
Not good, especially looking at these CPI inflation figures.
At this point, seriously, what the heck is going on? Why is inflation still moving at 4.3% YoY aggregated? Well, here’s why.
Powell Speech: Promising Inflation Readings, But Not Enough
Powell acknowledged that recent inflation readings are promising but stressed that more consistent data is needed to confirm that the trend is sustainable.
“I think the last [inflation] reading and the one before it do suggest that we are getting back on a disinflationary path,” said Powell. “We want to be more confident that inflation is moving sustainably down before we start the process of loosening policy,” he added.
So why hasn’t inflation gone down?
One reason is that the world is dedollarizing, so people won’t need as many dollars as before. This means high inflation and high interest rates for a long time.
China and Russia are also stocking gold. You can also be bullish on gold and Bitcoin because we are entering a new Cold War.
The problem is that modern capitalism, which tied itself to globalization in the 90s, cannot function that way. It needs low interest rates and more people consuming, which is impossible when job reports are being obfuscated and credit debt at an all-time high.
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Jerome Powell Speech: So Rate Cuts When?
Friday’s numbers last week show the US Personal Consumption Expenditures (PCE) price index, the Fed’s inflation benchmark, held steady in May. This mirrors the calm seen last fall, fueling hopes for rate cuts in 2024.
As it stands, the “current probability of an interest-rate cut in September at 56% compares with the 37% likelihood of no-change,” according to the FedWatch Tool.
Powell, though, remains wary. He insists on seeing more consistent data to ensure this dip is real and not a fleeting anomaly.
“We’re well aware that if we go too soon, we can undo the good work we’ve done in bringing down inflation,” Powell noted.”And, if we go too late, we could unnecessarily undermine the recovery and the expansion…It’s a big change: I’d say risks are much more in balance now,” he said.
Powell didn’t address how other central banks cut interest rates but couldn’t ignore the elephant in the room: debt.
Public debt exceeds 120% of GDP, and the federal deficit is projected at 6% by 2024. This path is not sustainable.
In the short term, assets like Bitcoin will continue to slug as we wait for interest rate cuts; in the long run, they will go up due to the instability of the dollar.
“The U.S. is running a very large deficit at a time when we’re at full employment,” Powell told ECB Forum listeners. “The level of debt that we have isn’t unsustainable, but the path that we’re on is not…We’ll have to do something sooner or later, and sooner will be better than later.
The Bottom Line: Powell’s Speech Predicts Pain to Come
The US economy is in open, shark-infested waters and will only get a life preserver after our arms or legs get eaten off.
Rate cuts will come only after the middle class takes another beating.
With markets shutting early Wednesday and entirely Thursday for Independence Day, the week’s action is condensed. But keep an eye on Wednesday’s Challenger job cuts, June ADP payrolls, and ISM services data.
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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