Yesterday, the President of the Fed Jerome Powell spoke to the United States Senate: what he said did not please the markets very much, so much so that as a consequence of his words the price of Bitcoin dropped.
Powell actually did not say anything specific about Bitcoin, and it is likely that at least one other dynamic also influenced the trend of BTC’s price.
Probably today will be the day when the direction that the markets might take will be better understood.
The words of Jerome Powell and the impact on Bitcoin
Yesterday the president of the Fed testified before the Senate monetary policy committee.
It is a mandatory commitment of the president of the Fed, and it is held at regular intervals. Nothing strange, therefore.
During his hearing, he updated the committee on the current monetary policies of the United States central bank.
One of the most important things he said is that the Fed does not consider it necessary to rush to make further interest rate cuts.
This was the sentence that most impacted the markets, in a negative way.
It was already assumed that the Fed in 2025 would not cut rates more than two or three times, but in light of this, the markets now fear that there will be only one cut, by 25 basis points.
The second problema
The real underlying problem is inflation.
Today, the updated January inflation data in the USA will be released, and the markets expect a slight improvement. In particular, regarding core inflation, which is what the Fed uses as a litmus test to guide its monetary policy, a further drop to 3.1% is expected, following the decline of one-tenth of a percentage point in December.
It seems, however, that the markets have interpreted Powell’s words from yesterday as a sort of denial of the possibility that in January the core inflation will have further decreased, after the drop in December.
On the other hand, already in July 2024, it had fallen to 3.2%, from 3.3% in June, but in August it remained steady, only to return to 3.3% in September.
In other words, since Powell very likely already knows what the annual inflation rate was in January, the markets interpreted his words as a worse scenario compared to the optimistic one they had predicted, and since they always try to anticipate events, it seems they have started to price in a core inflation that remains at 3.2% in January.
The other words of Powell
Powell also said that unemployment remains low, and that the labor market is stable and does not represent a source of inflationary pressure.
However, the problem is Trump’s tariffs, which will inevitably have an inflationary effect, although perhaps very limited, and the price of oil rising in recent days. Also because, as the Fed president said, the U.S. economy continues to be solid, and this implies implicit inflationary risks.
The same Powell did confirm that inflation is gradually approaching the 2% target, but he also reiterated that for now it remains elevated.
For this reason, he emphasized that a too rapid lowering of rates could compromise progress in the fight against inflation, even though a too slow lowering of rates could unnecessarily weaken economic activity and employment.
In fact, at a certain point, it confirmed the hypothesis that the Fed could maintain the rates at the current level if the economy remained strong and inflation did not reach 2%.
The price of Bitcoin after the words of Jerome Powell
Yesterday, after the start of Powell’s hearing, the US stock markets began to rise, after an opening in decline, but Bitcoin began to fall. After about an hour, the US stock markets also began to fall.
At the end of the trading day, the S&P500 index ended up closing flat, while the Nasdaq 100 closed at -0.3%.
Instead, the price of Bitcoin continued to fall, dropping in a few hours from $97,000 to less than $95,000; however, with the closure of the US markets, the decline stopped.
During the night, in fact, it then climbed back up to $96,000.
By now, it has been moving sideways more or less around these figures since the beginning of December, also because the US dollar continues to remain strong and, in fact, does not allow it to rise further.
Many are expecting sooner or later a drop in the Dollar Index that would give some room for the possible rise in the price of BTC, but for now, there is no sign of similar movements.
Source: https://en.cryptonomist.ch/2025/02/12/the-words-of-jerome-powell-have-damaged-bitcoin/