Powell’s Words Knocked Down Even Cryptos

How the cryptocurrency market reacted to the Fed's interest rate announcements. The individual variations and the big picture of the market.

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Few words were enough for Jerome Powell, head of the Federal Reserve, to sink the markets: “‘We have a long way to go’.

As he explained, in order for inflation to reach the desired level, the “final level” of interest rates will be higher than anticipated. He claimed that it is “too early” to consider stopping interest rate hikes.

The possibility of a continuation beyond the envisaged tightening of monetary policy alarmed investors, although the announcement of a 0.75% rate hike was no surprise.

In fact, it had a reassuring effect. That is why at the beginning stock indices and cryptocurrencies moved upwards. However, as the content of Powell’s speech unfolded, the markets began to sink.

As is usually the case, there was a lot of nervousness at the start of the announcement, which resulted in a rise from $20,400 to $20,800.

Jerome Powell / CNN
Jerome Powell | Source: CNN

Slowly though, as we mentioned, Powell’s statements started to scare traders, resulting in a pullback to $20,050.

The fact is that once again the cryptocurrency market is showing better “reflexes” than stocks. Especially in relation to technology companies, it is harder to fall and easier to recover.

We are still, of course, far from calling the behavior “bullish”, but it is still undoubtedly an encouraging sign.

Signs of the times are the performance of Dogecoin and Shiba Inu, the famous meme coins. While they too were dragged down by the general market pullback, they have recovered very quickly and even found their prices above where they were before the Fed announcement.

Powell’s influence may undoubtedly be great, but Musk’s influence is undoubtedly not going away, at least for some cryptocurrencies.

What made Powell worry?

What was the newest piece of data that worried the Fed, making Powell more aggressive?

As paradoxical as it sounds, it was that the economy is showing resilience! Specifically, new jobs showed that private sector jobs grew in the past month, at a pace that exceeded estimates.

This is interpreted by the Fed board as meaning that interest rate hikes are not hurting, at least not significantly, the US economy.

From what Powell said, decisions will depend on the set of newer data and their impact on the outlook for economic activity. He concluded by stating that in December, with new, updated data at their disposal, they will decide accordingly.

This is precisely the problem. Like all central banks, the Fed relies primarily on lagging economic data. By design as an institution, it is set up to put out current fires instead of predicting them.

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