brn Brief: Powell’s Comments on Inflation, Rate Cuts Send Bitcoin Lower

Federal Reserve Chair Jerome Powell's recent remarks at a central banking forum in Sintra, Portugal, have led to a notable reaction in the cryptocurrency market, particularly impacting Bitcoin, which now hover just over $60,000.

Powell expressed cautious optimism regarding the progress made on inflation but emphasized the need for more substantial evidence before considering any reduction in interest rates. His comments underscored a careful approach, prioritizing sustained inflation control over premature rate cuts.

“We’ve made quite a bit of progress in bringing inflation back down to our target,” Powell noted, CNBC reported. He highlighted recent inflation readings, which suggest a return to a disinflationary trend. However, he added, “We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”

This statement resonated through the financial markets, causing Bitcoin to drop from $63,000 to $61,000 overnight, interrupting its recent streak of minor gains. The anticipation surrounding potential rate cuts had fueled investor optimism, but Powell's cautious tone has momentarily dampened those expectations.

Powell's remarks were part of a broader discussion with other central banking leaders, including European Central Bank President Christine Lagarde and Brazil's central bank Governor Roberto Campos Neto, at a forum presented by the ECB. The forum's discussions reflect a global perspective on inflation and interest rate policies, with each central bank navigating its path amid varying economic conditions.

The U.S. Commerce Department’s personal consumption expenditures price index, which the Fed closely monitors as its main inflation gauge, showed a 2.6% increase over the past 12 months in May. This is a significant decrease from approximately 4% a year ago, although it remains above the Fed's 2% target, which policymakers do not expect to achieve until 2026, CNBC said.

Powell acknowledged the complexities of timing rate cuts, warning against premature actions that could reverse the progress made in reducing inflation. He stated, “We’re well aware that if we go too soon, we can undo the good work we’ve done. If we do it too late, we could unnecessarily undermine the recovery and the expansion.”

"Powell's comments, emphasizing the need for greater confidence in the disinflationary trend before considering rate cuts, is dampening investors' hopes for a new rally," brn analyst Valentin Fournier said.

"Despite this setback, we believe rate cuts are still on track to begin in September. We recommend accumulating Bitcoin while others are hesitant, positioning yourself to take profits when renewed investor confidence drives prices higher," our in-house analyst added.