Bitcoin rallied immediately after his speech at the Jackson Hole Fed conference.
- As expected, Jerome Powell signals rate cut in September
- Bitcoin and traditional markets surge, at least initially
- Investors will now focus on whether the first rate cut will be 25 or 50 basis points.
After a long wait, it looks certain that the US central bank will cut interest rates in September after Jerome Powell said the “time has come” to ease monetary policy.
“I am increasingly confident that inflation will move back up to 2 percent on a sustained basis,” Powell said in a keynote speech at the Kansas City Fed’s Jackson Hole symposium . He added: “The labor market has cooled substantially from its prior overheating. We neither seek nor welcome a further cooling of labor market conditions.”
Powell added: "Now is the time for a policy adjustment. The way forward is clear, and the timing and pace of rate cuts will depend on incoming data, the changing outlook, and the balance of risks."
While the market fully expects Powell to hint at a rate cut at the September Fed meeting, the tone of his speech may be slightly more dovish than expected. In the minutes after Powell’s speech, Bitcoin (BTC) rose more than 1% to $61,900.
Traditional markets also saw sharp gains: the Nasdaq rose 1.7%, the S&P 500 rose 1.2%, and gold rose 1%. The 10-year Treasury yield fell 5 basis points to 3.80%, and the dollar index fell 0.6%.
After years of keeping the Fed’s policy rate close to zero, the U.S. central bank began a long series of rate hikes in early 2022, culminating in a hike in the federal funds rate to a range of 5.25%-5.50% in 2023. Since then, the Fed has been waiting for clear signs of a meaningful slowdown in inflation toward its 2% target before starting to cut rates. That day has certainly arrived.
The question then becomes whether the Fed will cut the federal funds rate by 25 or 50 basis points at its mid-September meeting. The market continues to favor a 25 basis point cut, but the probability of a 50 basis point cut has risen to 32.5% now, from 24% a day ago, according to CME FedWatch . There are a number of key economic reports between now and the September decision—among them, employment and inflation data for August—that should be key to the Fed's final decision.
