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Cryptocurrency prices wavered on Wednesday as investors analyzed comments from the Federal Reserve that provided new insight into the U.S. central bank’s fight against inflation.
Policymakers’ decision to leave interest rates unchanged for an 11th consecutive month was an inevitability, given the Fed’s movements in futures markets. In its most restrictive stance in more than 20 years, the Fed kept its benchmark borrowing rate in a range between 5.25% and 5.50%.
However, this month’s release of a so-called “dot plot” suggests that U.S. central bank watchers have seen a notable change in financial conditions since March. The Fed, in its most recent summary of economic projections, predicted three rate cuts through the end of the year.
The dot chart released Wednesday suggests that Fed policymakers now think a single rate cut might be more appropriate – interpreted by the market as a hawkish signal. The projection goes beyond the two rate cuts that economists expected from the Fed, as it seeks to keep its rates high for longer in the face of a strong U.S. economy and labor market.
Cryptocurrency prices rose earlier today following news that inflation had slowed to 3.3% in the 12 months through May. The report said consumer prices for U.S. goods and services rose last month slightly less than economists expected.
Following the Fed’s announcement, Bitcoin and other cryptocurrencies fell. For example, just 15 minutes after the Fed’s decision, the price of Bitcoin quickly fell by 1.2%, from $69,900 to around $69,000. Meanwhile, the prices of Ethereum and Solana also declined at similar rates.
The Fed has said in recent months that it will not cut rates until it “gains greater confidence that inflation is moving sustainably toward 2%.” Federal Reserve Chairman Jerome Powell affirmed this position on Wednesday and said: “So far this year, the data has not given us greater confidence. »
“Recent indicators suggest that economic activity has continued to grow at a solid pace,” Powell added in a statement. “In recent months, modest progress has been made toward the Committee’s 2 percent inflation target.”
Ahead of the conclusion of the Fed policy meeting, futures traders drawn in pencil there’s a 61% chance the Fed will cut rates in September, which would likely boost the U.S. economy through lower borrowing rates. That figure fell to 59 percent after Powell’s written remarks were released.
Shortly before U.S. inflation peaked at 9.1% in June 2022, the Fed began raising interest rates from near zero to calm a sputtering economy. Although inflation has fallen significantly since then, Powell said Wednesday that the U.S. central bank’s quest to reach 2% is not yet over.
Powell cited Wednesday’s Consumer Price Index report, which showed inflation remained flat month-over-month in May, as a sign of potential progress. “Let me say we welcome today’s reading and hope to see more,” he said.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could hinder the achievement of the Committee’s objectives,” Powell added, one of which is “maximum employment” for workers. Americans.
The prices of so-called risky assets, including stocks and cryptocurrencies, generally come under pressure as interest rates rise and payments for holding cash and U.S. Treasuries become more attractive . Investors expect the opposite to happen when the Fed eases U.S. monetary conditions.
“We can’t know what the future holds, but in the meantime we’ve made pretty good progress on inflation with where we are now,” Powell said, adding that the Fed expects a gradual decline in inflation and a better balance of expenditure. the work market. “We’re making good progress here.”
Edited by Andrew Hayward
Editor’s note: This story was updated after publication to add another quote from Powell.
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