The crypto and broader market reacted with higher volatility after the Jerome Powell speech during Wednesday’s FOMC meeting.
However, there was a lot more to it that painted a much clearer picture of the current state of the economy and its implications for crypto market prices.
Moreover, the speech offered crucial insights into what could dictate the way investors will move in Q4.
Why Speech by Jerome Powell Weighed Heavily on Job Market Data
Employment data has been a key pillar in the FED’s decision-making process. The latest jobs market data was thus critical in the decision to lower rates.
Powell’s Speech revealed that the FED has been walking a tightrope because unemployment has been rising while inflation also stayed elevated.
The FED’s decision to cut rates was heavily influenced by the need to support the declining labor market.
Fed’s Biggest Challenge
Although the FED chair acknowledged that inflation remained elevated, he also downplayed it. This suggested that it was not a major concern compared to the labor market situation.
This was because a further decline in the labor market risked causing a recession.
The FED’s decision to lower rates was expected to stimulate the economy through investment and job creation. This could mean more liquidity inflows for risk-on assets.
The S&P500 surged to a new ATH within 24 hours after the announcement. The cryptocurrency market also experienced a demand surge, which pushed its collective market cap back above $4 trillion.
However, it was worth noting that Jerome Powell’s speech also meant that the threat of elevated inflation remained.
Moreover, the impact of tariff wars was also a variable in the narrative, and its impact was yet to be defined.
The big question now is whether there will be more than one rate cut. Powell also noted that the FED targeted 2 more rate cuts in October and December.
However, this will likely depend on whether the economy will still maintain a healthy balance before the end of the year. More rate cuts will likely sustain a bullish sentiment.
Key Economic Factors to Look At Post Jerome Powell’s Speech
Rate cuts are expected to create a risk-on environment. However, a few other factors could come into play in determining how long this phase of the market will last and the level of investment that will take place.
A good place to start is by exploring the DXY, which recently surged after the rate cut announcement during the Jerome Powell speech.
If the greenback index rises, then this could lead to higher bond yields, effectively making bonds more attractive. This scenario may make bonds more attractive due to their lower risk profile.
On the other hand, a declining DXY may push the market to seek opportunities in risk-on assets, especially in an environment with declining rates.
The DeFi segment may end up being sensitive to DXY changes. Interestingly, the DXY just bounced back in the last 2 days after rates were announced.
Its extended downside could pave the way for a robust crypto market rally. In summary, the FED’s latest FOMC may have just triggered an extension of the bull market for risk-on assets.
Q4 might be on track to deliver an impressive rally, but that will depend on how well the Fed manages its economic balancing act.