The SALT Cap Has a $20 Billion Hole
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The robust growth of the U.S. economy may necessitate additional interest rate increases to mitigate inflationary pressures, according to Federal Reserve Chair Jerome Powell.
Speaking at the Jackson Hole Economic Symposium, an annual conference of central bankers in Jackson Hole, Wyo., Powell outlined the uncertainties surrounding the economic outlook while indicating the possible need for further restrictive monetary policies, as reported by the Associated Press.
Inflation still too high
Despite inflation having declined from its peak, Powell maintained that it remains excessively high. He further emphasized that the Federal Reserve remains watchful for signs that the economy is not decelerating as predicted. The central bank is poised to escalate rates further, if necessary, and plans to maintain a restrictive policy level until it sees substantial evidence of sustained inflation reduction towards their 2% target.
As Powell noted, the economy has been expanding at an unexpected pace, coupled with consistent consumer spending, potentially sustaining high inflation pressures. This observation marks a significant departure from his statements in the previous year, where he explicitly warned of continued sharp rate hikes by the Fed to curb soaring prices.
The Fed’s rate hikes have resulted in significantly increased loan rates, making it challenging for Americans to afford homes or cars and for businesses to finance expansions. Despite this—and contrary projections—the U.S. unemployment rate remained steady at 3.5%, barely above a half-century low. The persistent inflation and robust employment figures underscore Powell’s concern about the rapid economic growth, indicating a potential need for higher interest rates to act as a restriction.
Contrary to expectations earlier in the year, most traders now foresee no interest rate cuts before mid-2024 at the earliest. According to Powell, the central bank’s policymakers believe their key rate is sufficiently high to restrain the economy and cool growth, hiring, and inflation. However, he acknowledged the difficulty in determining the necessary borrowing costs to slow the economy, resulting in constant uncertainty regarding the effectiveness of the Fed’s policies in reducing inflation.
While traders and economists have shown increased optimism for a “soft landing”—the Fed achieving its target inflation rate without inducing a steep recession—others remain skeptical.
As Jerome Powell, the Federal Reserve (Fed) Chair, prepares to return to Jackson Hole this Friday, the Bitcoin (BTC) market is experiencing a sense of anticipation due to the similarities in the current price action compared to the period leading up to last year’s speech.
Key moving averages have been tested and lost over the past two weeks, followed by a period of consolidation, reminiscent of previous events.
However, it is important to note that these similarities do not guarantee a repeat of the past, as market conditions and Powell’s stance have since evolved.
Déjà Vu In The Bitcoin Market?
According to Keith Alan, co-founder of analysis and crypto research firm Material Indicator, last year, in the two weeks preceding Powell’s speech, BTC’s price broke through crucial technical support levels represented by the 21-day, 50-day, 100-day, and 200-week Moving Averages (MA).
Subsequently, a period of consolidation ensued, followed by a significant price drop in response to Powell’s hawkish tone during the speech. Alan stated:
Remember when Fed Chair Powell spoke from Jackson Hole last year and his hawkish tone triggered a 29% BTC dump that took 5 months to recover?
Notably, the recent price action in the Bitcoin market has displayed similarities to last year’s pattern. Over the past two weeks, Bitcoin has tested and lost these same key moving averages, and it is currently undergoing a phase of consolidation, mirroring the events leading up to Powell’s previous address.
Keith Alan emphasizes that since last year’s Jackson Hole event, there have been notable changes. Core inflation has decreased, and Powell’s approach to communication has become more “measured”.
It is uncertain whether Powell will adopt a hawkish or dovish stance in his upcoming speech, making it challenging to predict the market’s reaction with certainty. What is evident, however, is that the market is primed for a significant move.
Additionally, Alan suggests that the formation of a lower low in price increases the likelihood of an extension of the existing downtrend. Market participants should be prepared for the possibility of further testing of support levels.
As the Bitcoin market awaits Powell’s speech, market sentiment remains dynamic. Traders and investors are anticipating potential market-moving cues from the event.
As the date of Jerome Powell’s return to Jackson Hole approaches, Bitcoin has displayed a notable recovery of 2.1% within the past 24 hours, marking a positive upward movement that brings it closer to the $27,000 threshold.
However, it is crucial to note that if the outcome of Jerome Powell’s speech on Friday proves favorable for crypto investors and propels Bitcoin’s price to higher levels, the cryptocurrency may encounter a significant obstacle in the form of its 200-day moving average positioned at $27,200.
Featured image from iStock, chart from TradingView.com