In a Nashville speech, Federal Reserve Chair Jerome Powell described a path for interest rate cuts over the next few months. Further cuts are likely, but they will be smaller than the most recent ones.
Several experts described the potential bullish impact on crypto markets in exclusive interviews with BeInCrypto.
Powell’s Assessment of Rate Cuts
At the annual meeting of the National Association for Business Economics, hosted in Nashville, Tennessee, Federal Reserve Chair Jerome Powell made a speech on the state of the economy. Powell paid special attention to possible rate cuts, which have had an outsized impact on the crypto market.
Essentially, Powell claimed that “the economy is in solid shape,” compared to a series of negative trends in 2023, and that the Fed was very likely to employ further rate cuts to continue the trend. However, compared to the moderately aggressive cut last week, subsequent cuts throughout the year would be much lower.
“Our decision to reduce our policy rate reflects our growing confidence that strength in the labor market can be maintained. Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course. The risks are two-sided, and we will continue to make our decisions meeting by meeting,” Powell stated.
Powell added further that the final decisions on these rate cuts will be entirely determined by data. He concluded by reminding the audience that his foremost concerns are US employment rates and price stability.
Nevertheless, crypto in particular also stands to benefit from additional rate cuts, if the current data is anything to go by. The recent rate cuts have significantly boosted trade volumes after several weeks of slow activity.
Several prominent leaders in the crypto world have been quite bullish on the subject of rate cuts. For example, Binance’s energetic CEO Richard Teng spoke at length in an exclusive interview with BeInCrypto:
We expect that rate cuts will have a significant impact on digital asset prices. Lower interest rates increase liquidity in the financial system, driving demand for higher-yield, higher-risk assets, including cryptocurrencies. Additionally, lower rates may stoke 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 take advantage of rate cuts; even fears of economic downturn can play to crypto’s benefit in this instance. 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.
Still, it’s very possible to have too much of a good thing. Teng mentioned the positive impacts of slight inflation fears, but also stated that cryptocurrencies are risk-on assets. David Morrison, Senior Market Analyst at Trade Nation also spoke with BeInCrypto, and addressed the downsides of inflation fears:
“At the moment, most investors see a ‘Goldilocks’ environment. There’s little evidence of a widespread economic slowdown. Yet most central banks are loosening monetary policy. If talk switches back to recessions, inflation and of course, geopolitical tensions, this will drive investors toward ‘safe-haven’ assets like gold and silver,” Morrison stated.
For now, then, Powell’s comments should be very reassuring to the crypto industry. In the short term, these rate cuts have proven very beneficial at juicing market liquidity and investment. If the rate cuts were to continue at this heightened pace, however, investors may shy away from crypto. A median approach may prove the best, in the long run.
