Crypto assets are witnessing a remarkable upswing. BTC has swiftly surpassed $115,700, while ETH has surged to $4,600. This sharp increase in ETH price has led to a promising outlook in the ETHBTC pair. Recent comments from Powell have alleviated fears, as he downplayed abnormal Producer Price Index (PPI) data and focused more on cooling employment levels. Further details are emerging as cryptocurrencies continue to rise.
Why Are Cryptocurrencies Rising Today?
Powell’s recent announcements provided a much softer touch compared to Hammack’s aggressive tone yesterday. His remarks contained elements that encouraged investors’ risk appetite. Among the most significant points he made were the following: “In the near term, inflation risks are upward, and employment risks are downward, which creates a challenging situation. When our objectives conflict like this, our framework requires us to balance both aspects of our dual mandate. Our policy interest rate is now closer to neutral, just 100 basis points higher than a year ago, and the stability of unemployment and other labor market indicators ensures cautious progression in policy adjustments. However, given policy constraints, any changes in the fundamental outlook and risk balance may necessitate adjustments to our policy stance.”
This statement suggests that extreme signals are emerging in employment, which needs to be taken seriously due to policy constraints, providing room for maneuver. This could be interpreted as the potential for a rate cut in September. In fact, markets are now anticipating two rate cuts this year, with the likelihood of a September cut soaring above 90%.
Powell’s Announcements
Powell began his speech by highlighting the resilience of the U.S. economy amid profound changes, suggesting that tariffs will not be catastrophic. Early in his speech, he discussed the change in risk balance, indicating that inflation-focused monetary policy is now ready to take employment seriously. “In terms of the Fed’s dual mandate objectives, the labor market is close to maximum employment, while inflation, although still somewhat elevated, has significantly retreated from post-pandemic peaks. Simultaneously, the risk balance seems to be shifting,” remarked Powell.
He discussed the negativity in employment data, linking it to the sharp decline in immigration, stating that downward employment risks are increasing and there is a potential for unemployment rates to rise rapidly. This detail also supports expectations for rate cuts.
Powell further commented, “The effects of customs tariffs on consumer prices are now clearly visible. We expect these effects to accumulate in the coming months, but there is great uncertainty regarding their timing and magnitude. The key question for monetary policy is whether these price increases will significantly exacerbate the ongoing inflation issue. A plausible baseline scenario is that the effects will be relatively short-lived, meaning a one-off change in the price level. Of course, ‘one-off’ does not mean ‘all at once.’ The impact of increased tariffs on supply chains and distribution networks will take time to manifest. Furthermore, as customs tariff rates continue to change, these adjustments could extend the adaptation process.”
Essentially, Powell emphasized that they will observe the impact of tariffs on inflation as much as they can tolerate.
In summary, all these details indicate a weakening risk of policy tightening due to inflation for cryptocurrencies. Particularly, ETH may positively diverge and soon set new records with the demand from strong treasury companies worth tens of billions of dollars. Powell has clearly indicated his unwillingness to persist on inflation and signaled an unwillingness to confront Trump, providing a sigh of relief.
