In a speech in Nashville on the 30th (local time), Federal Reserve Chairman Jerome Powell outlined the path for rate cuts in the coming months. Additional cuts are expected, but they will be smaller than recent cuts.
Several experts have explained the positive impact on the cryptocurrency market in exclusive interviews with BeInCrypto.
Powell's Rate Cut Evaluation
Federal Reserve Chairman Jerome Powell spoke about the state of the economy at the National Economic Association’s annual meeting in Nashville, Tennessee. Powell specifically noted the potential for a rate cut, which has had a major impact on the cryptocurrency market.
Powell insisted that “the economy is in a stable state” and that the Fed is very likely to continue cutting rates in 2023, compared to the negative trend. However, any subsequent cuts this year would be much less aggressive than the aggressive cuts last week.
“The decision to lower our policy rate reflects our growing confidence that the strength of the labor market can be sustained. If the economy performs broadly as expected, policy will move toward a more neutral stance over time. But we are not on a pre-determined path. The risks are two-sided, and we will continue to make decisions from meeting to meeting,” Powell said.
Read more: How to Protect Yourself Against Inflation Using Cryptocurrencies
Powell added that the final decision on such a rate cut would be entirely dependent on data. He concluded his speech by emphasizing that U.S. employment and price stability were his primary concerns.
Nonetheless, current data suggests that cryptocurrencies could benefit from further rate cuts, with the recent rate cuts having led to a significant increase in trading volume after several weeks of slow activity.
Several key leaders in the crypto space are very positive about the rate cut. For example, Binance’s energetic CEO Richard Teng elaborated in an exclusive interview with BeInCrypto:
We expect the interest rate cut to have a significant impact on digital asset prices. Lower interest rates increase liquidity in the financial system, which encourages demand for high-yield, high-risk assets. Lower interest rates may also trigger inflation concerns, and some investors may turn to cryptocurrencies to maintain purchasing power,” Teng said.
In other words, cryptocurrencies are particularly well-suited to benefit from lower interest rates. Even concerns about an economic downturn could work in their favor in this case. Teng added that a new ETF market could “facilitate the transition between stocks and cryptocurrencies,” which could make it easier for the market to become more liquid.
But there can be too much of a good thing. Teng noted the positive effects of some inflation concerns, but also said cryptocurrencies are risky assets. David Morrison, senior market analyst at Trade Nation, also spoke to BeInCrypto and noted the downside of inflation concerns:
“Most investors are currently looking at a ‘Goldilocks’ environment. There is little evidence of a broad-based economic downturn, but most central banks are easing monetary policy. If the conversation turns back to recession, inflation and of course geopolitical tensions, that will drive investors to ‘safe havens’ like gold and silver,” Morrison said.
Read more: The 2023 US Banking Crisis Explained: Causes, Impacts, and Solutions
So for now, Powell’s comments are very reassuring to the crypto industry. In the short term, these rate cuts have been very beneficial in increasing market liquidity and investment significantly. However, if the rate cuts continue at this high rate, investors may shy away from crypto. A middle-of-the-road approach may be the best option in the long run.
