Only one interest rate cut this year? Powell goes hawkish again, BTC gives back gains

Author: Mary Liu, BitpushNews

During the early trading session on Wednesday, the US Department of Labor announced that the Consumer Price Index (CPI) for May was lower than expected. The cryptocurrency market soared, with the price of Bitcoin rebounding to above $70,000. However, after the Federal Reserve decided to keep interest rates unchanged and hinted that there may only be one rate cut this year, the rally quickly retreated. At the time of writing, the trading price of Bitcoin was $68,250, with a 24-hour increase of 1.5%.

Altcoins are performing well, with most of the tokens in the top 200 market capitalization seeing price pumps.

The latest DePIN Token Io.net (IO) performed the best, with a 35% increase, followed by Livepeer (LPT) with a 19.3% increase, and Injective (INJ) with a 12.6% increase. Akash Network (AKT) had the largest decline, with a 10.5% decrease, FLOKI (FLOKI) decreased by 7.9%, and MANTRA (OM) decreased by 5.3%.

The total market capitalization of cryptocurrencies is 2.48 trillion US dollars, with Bitcoin’s market share at 54.1%.

The US stock market ignored Powell’s remarks. As of the Wednesday close, the Dow initially fell by 30 points or 0.09%, the S&P 500 rose by 0.85%, and the Nasdaq rose by 1.53%. The latter two hit a new closing high for three consecutive trading days. Nvidia (NVDA.O) rose by 3.5%, Apple (AAPL.O) rose by 2.86%, and briefly reclaimed the title of the world’s largest market cap during the session.

Only one interest rate cut this year? Powell’s speech is hawkish

The Federal Reserve today continues to keep interest rates in the current range of 5.25% to 5.5%, but has lowered the expectation of rate cuts to only once in 2024. Policymakers pointed out that the 2% inflation target has made further progress.

However, Federal Reserve Chairman Jerome Powell pointed out at a press conference that although inflation has fallen from its peak, there is currently no confidence in cutting interest rates, let alone announcing a date for the rate cut.

Powell said, “We think today’s (CPI) report represents progress and reinforces confidence. But we think we do not yet have enough confidence to begin to ease policy.”

Powell also believes that the Fed’s restrictive stance on monetary policy is having the expected effect on inflation, but he added that central bank officials are still waiting to see enough progress.

Powell said, “Over time, we will know if it is restrictive enough. But I think, for the reasons I mentioned at the last press conference and elsewhere, I think the evidence is very clear that the policy is restrictive and is having the effect we hope for.”

In addition, most Federal Reserve officials are not eager to cut interest rates. Former Federal Reserve official Laurence Meyer said, ‘CPI data is good, and I think the Federal Reserve may cut interest rates in September. They will have three monthly economic reports before the meeting in mid-September.’

Some analysts said that considering the mild CPI, the Fed’s forecast today seems a bit outdated, but this may also reflect its unwillingness to change the forecast based on one set of data. Powell also said in his speech that the inflation outlook provided by the Fed is “a rather conservative forecast”, which may not be confirmed by future data and may be revised.

Analyst: Bitcoin may consolidate or mildly rise around current levels

Bitfinex analysts said that the decision to maintain interest rates stable indicates that the Federal Reserve remains cautious about inflation, as the Federal Reserve needs to balance inflation control with economic stability.

Analysts point out, ‘Historically, decisions to cut interest rates and maintain interest rates unchanged have had significant impacts on asset flows and market prices. For example, past interest rate cuts have often led to asset price increases and ETF inflows, as in the case of the gold market. Similar situations can also occur in the cryptocurrency market. The last eight CPI and FOMC events have resulted in increased volatility, at least on an intraday or weekly basis. However, since March, this volatility increase has been short-lived’.

Despite the Federal Reserve’s decision to maintain interest rate stability, the global trend is towards rate cuts, and it’s only a matter of time before the US central bank cuts rates.

Analysts wrote, “Central banks around the world have begun to cut interest rates, indicating an expanding trend of monetary easing. It is clear that the Bank of England and the Federal Reserve will follow suit in the coming months. The global liquidity cycle suggests that the money supply may increase, which can support asset prices including cryptocurrencies.”

The volatility of the cryptocurrency market may increase in the short term. Analysts say, “With the Fed’s decision to maintain the current interest rate, Bitcoin (BTC) may experience short-term fluctuations as the market adjusts to the news. However, the overall trend may remain positive, especially if the overall economic outlook continues to improve.”

They pointed out, “Historically, three out of the past four CPI data announcements have also led to local price highs for Bitcoin, indicating that such announcements may bring about fluctuations. Due to investors’ optimistic outlook on interest rate cuts later this year, Bitcoin may consolidate or experience moderate upward movement near its current levels.”

Ionic Digital CEO Matt Prusak said, “As the Fed seeks a soft landing, any substantial drop in Bitcoin could present attractive accumulation opportunities for long-term investors.”