The time has come, BTC has not fully priced this in yet, but great things are happening for cryptocurrencies. Powell clearly signaled that they will start cutting rates. Mt Gox refunds are almost complete. Germany’s sales have ended, creating a favorable environment for risk markets. Of course, unless a third world war breaks out.
America Will Lower Interest Rates
The market expectation has been for a 100bp cut this year for a long time. This was supported by three months of favorable inflation and PCE data. Now, after the massive downward revisions in the employment front, the Fed needs to remember its second important duty. The Fed has two jobs. One is price stability, and the other is employment growth. Both tasks are of equal value to the Fed. However, after the peak inflation rate of the last 40 years, price stability had become more prioritized.
Now this is changing. With inflation falling below 3%, the Fed is forced to cut the rates it has kept at peak for over a year. This is necessary to prevent the greater damage that further tightening would cause to the economy.
Powell’s Statements
Over the past three years, Powell reminded that the steps they took were necessary due to inflation significantly exceeding the target level. He also emphasized that during this period, the primary focus of the Federal Open Market Committee was to reduce inflation.
The important parts are as follows:
“Our restrictive monetary policy has helped to reestablish the balance between total supply and demand, alleviating inflationary pressures and ensuring that inflation expectations are well anchored. Inflation is now much closer to our target, with prices rising by 2.5% over the past 12 months. After the pause earlier this year, progress towards our 2% target has resumed. My confidence that inflation is on a sustainable path towards 2% has increased.”
The Fed has been stating that it is waiting for the right conditions to cut rates to avoid having to increase them again. Now, they are announcing that the conditions are right for cuts without having to raise rates again. This could mean new peaks for risk markets, including cryptocurrencies, due to expectations until the end of the year.
