Today’s meeting lacked expectations for Powell to boost cryptocurrency enthusiasm, and rightly so.
We find ourselves amid uncertainty, and Powell’s emphasis on “uncertainty” unnerved investors in risk markets. In the short term, cryptocurrencies seem unlikely to improve their standings.
Impact of Fed Policies on Cryptocurrencies
Powell signaled the Fed’s independence by choosing to monitor tariff effects instead of immediately lowering rates as Trump suggested. Although he avoided directly addressing Trump, the Fed Chairman highlighted the increased risks in uncertain times, which doesn’t bode well for risk markets, including cryptocurrencies. The potential for further declines looms large.
If the Fed embarks on a new path, it signals such changes, avoiding surprises. Aside from last year’s unexpected 50bp cut, the Fed has rarely startled markets. This meeting also lacked decisive commitments to rate cuts, even amidst tariff impacts, reflecting a missed opportunity.
Powell clearly stated that while there might be signs of employment softening, more conclusive data is needed. This suggests that June might not see a rate cut, and even the late July meeting may retain rates due to cautious policy. Powell’s hints at inflation targets being deferred implied that rate cuts are not imminent this year.
For burgeoning rate cut expectations, definitive adverse employment data, especially with June’s upcoming May figures, is crucial. Recent statements, though suggestive of adaptive responses, emphasized that policy isn’t overly tight.
Cryptocurrencies Face Tough Challenges
For cryptocurrencies, these developments likely indicate further declines in the hours ahead. Cryptocurrencies have become hypersensitive to external influences, and BTC testing $92,000 after today’s announcements would be unsurprising. Just before Powell’s statements, Trump disrupted tariff resolution hopes, complicating the scenario.
Tariff discussions are expected to persist until July, coinciding with the pause’s deadline. The Fed, aiming to avoid missteps amid tariff-induced uncertainties, intends to maintain a cautious interest rate policy, refraining from rate cuts.
More tangible impacts of tariffs on inflation will eventually emerge. The Fed might then prioritize inflation concerns, especially if no deal materializes with China by July, potentially leading the Fed to delay interventions pending clearer inflation insights.
For cryptocurrencies, the continuation of negative conditions seems probable due to several reasons. The Fed maintains interest rates, global trade tensions intensify tariffs, and institutional investors may reduce engagements as summer nears, keeping transaction volumes subdued until late July or August.
Can anything positive happen? Certainly, a glimpse of optimism is present. Trump’s leap of faith in tariff agreements may defy expectations. Startling employment data might prompt rapid Fed rate cuts. Prolonged U.S. bond volatility could necessitate expansive measures, potentially driving positive trends.
The next Fed rate decision is scheduled for 41 days, 22 hours, and 30 minutes. CME data indicates a 95.3% chance of cuts in September. As I finalize this piece, BTC has dipped below $96,000, as anticipated. Despite market negativity, could the unpredictable cryptocurrency realm surprise us with a temporary surge? A compelling narrative might just trigger such a move.
