Bitcoin Reacts to Dovish Fed Powell Speech
The Federal Reserve targets a 2% inflation rate.
A pause in the interest rate hike may increase the demand for Bitcoin.
The Federal Reserve will use available data to establish when to make another interest rate hike.
Keywords: BTC price, Bitcoin price movement, bitcoin price, BTC price drop, purchase bitcoin, buy Bitcoin, buy BTC
Introduction
The crypto and stock markets have been waiting to hear the Federal Reserve’s position on interest rates for the fourth quarter of 2023. It has not been clear whether or not there would be an interest rate hike in September, October, November and December. However, Powell has hinted on a dovish Fed monetary policy for the fourth quarter.
This article explores Jerome Powell, the Fed Chair’s position on the Federal Reserve Monetary Policy stance for the fourth quarter. We will also cover the implications of Powell’s speech on the United States economy and financial markets.
Fed Powell’s Dovish Speech on Monetary Policy Position
On Thursday, 19 October, Jerome Powell, the Fed Chair, presented a dovish speech on monetary policy, mainly focused on interest rates in the country. Powell was clear in his speech that inflation is still high and needs to be tamed. The United States targets to have a 2% or lower inflation rate.
During a lunch which the Economic Club of New York hosted at the Hilton Hotel Powell said, “Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.”
He was also quick to point that the Fed will take a cautionary position on interest rates, hinting that it will not hike them soon. On the whole, he said the Federal Reserve’s Open Markets Committee will take time and effort to evaluate all the data available now and in the future to assess the suitability of an interest rate hike.
According to Powell and some Federal Open Market Committee members, the country will try to balance its approach on some economic variables to avoid a recession, yet taming inflation.
Currently, the Federal Open Market Committee (FOMC) has resolved to maintain the fed funds rate between 5.25 and 5.50%. Nevertheless, the FOMC has said that there is still a possibility to raise the interest rate in the next coming months if inflation remains a threat.
A FOMC committee member said, “In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
It is critical to note that the Fed Chair, Powell, said that he is happy that inflation is just 3.5% over last year’s figure. He is afraid, however, that several factors may push it upwards in the near future.
As a result, he concluded, “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks.”
There is no doubt that factors like the geo-political tensions in the Middle East may have an effect on the Fed Funds rate. That is why Powell talked briefly about such a development. He said, “Geopolitical tensions are highly elevated and pose important risks to global economic activity.”
Some economic analysts have hinted that if the Israel-Hamas conflict spills into other oil-producing countries it may affect oil-production in the Middle East. Should that happen the resultant changes in oil prices may affect the United States cost of living and inflation rate.
Nevertheless, after carefully evaluating Powell’s speech Gregory Daco, EY Chief Economist, concluded, “The Fed is in no hurry to tighten monetary policy further. A November rate hike can safely be priced out.”
Effects of the Federal Reserve’s Current Monetary Policy on the Economy
As said, both inflation and interest rates are still high in the United States which affects the purchasing power of the citizens. For example, in September, there was a 3.7% year-to-year increase in the Consumer Price Index as a result of rising gas costs. However, that rate is far less than the 9.1% recorded in June 2022.
According to recent data, there is still high consumer spending buttressed by a robust labour market. For instance, the employers added 336,000 jobs in September alone and the unemployment rate stood at 3.8% during the same period. On the other hand, there were over 9.6 million job openings in August, a sign of continued economic growth.
As Powell pointed out, the increase in bond yields may help the economy to slow down which is likely to reduce incidences of future interest rate hikes. Nonetheless, the treasury yields might have soared because the market expected the Fed to have another interest rate hike in September.
Read also: What are Bitcoin ETFs? Bitcoin ETFs Explained
The Impact of Powell’s Dovish Speech on Bitcoin
Bitcoin experienced a strong upward momentum a few days before Powell’s dovish speech. For example, a day before Powell delivered his speech the BTC price jumped above $28.5K.
And on 20 October, 24 hours after Powell’s speech, the bitcoin price rose to $29,846 as the following graph indicates.
Bitcoin Price Movement – CoinGecko
As the above bitcoin price movement graph shows, its value increased dramatically on 20 October. Since then, it has remained fairly high. Currently, investors can purchase bitcoin at around $34,427. Nevertheless, there has been a BTC price drop from $34,977 on 25 October to the current value.
Bitcoin’s Future Prospect after Powell’s Dovish Speech
Since the Fed is unlikely to increase the interest rate monthly, it means that the consumer purchasing power will remain relatively high. As a result, investors may have additional income to purchase high risk assets like bitcoin. Thus, the demand for bitcoin is likely to increase in the near future which may push its price up.
Recently, there has been an increase in bitcoin wallet address holdings due to the recent positive news like SEC’s dovish monetary policy position and a prospect of bitcoin ETF approvals. Some investors are likely to buy BTC when it experiences pullbacks.
Recent Bitcoin Price Jumps
We have witnessed several bitcoin price jumps since mid-July when Ripple had a partial win over the SEC. In fact, after that ruling the Bitcoin price rose to $31,809.
Also, on Tuesday 24 October the price of bitcoin reached $35,000, a new high since May 2022. The positive sentiment of a possible spot bitcoin ETF approval resulted in such a price surge.
Yet, on 16 October the BTC price rose to $28,500 following the SEC’s decline to appeal against the court ruling that it should review its rejection of Grayscale spot BTC ETF application. The market interpreted the SEC’s decline to appeal the court ruling as an indication that the regulator might soon approve the BTC ETF.
Conclusion
Powell acknowledged that the Fed may pause its interest rate hikes in the coming months. However, he said that the Federal Open Market Committee will keep assessing the relevant data to determine when to hike the fed funds rate again. Still, the aim of the Federal Reserves is to attain a 2% interest rate.
