Crypto markets volatility amplifies during Fed Chair hawkish speech at Jackson Hole

    27 Aug 2022

    Crypto prices swung as Fed chair Jerome Powell spoke about the pain of inflation in the US. The Fed remains committed to reigning in inflation, even if at some “unfortunate costs.”

    Federal Reserve chairman Jerome Powell spoke about FOMC’s future goals at the annual Jackson Hole symposium. He said that FOMC’s overarching directive remains to bring inflation back down to 2%, which “will likely require maintaining a restrictive policy stance for some time.”

    Crypto prices rose the hour ahead of the speech, Bitcoin was trading above $21,800, and Ether rose above $1,700. Then prices dropped during the speech, as the Fed chair shared his colleagues median interest rate projections – just under 4% through the end of the year.

    From the start of Powell’s speech, Bitcoin fell over 4% to a tree-week low of $20,650, according to CoinGecko. Ether, the second largest, fell over 8%, tumbling to $1,550. Altcoins are in the red as well, with Cardano, Solana, and Polkadot all down about 5% in the past hours.

    “While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down,” Powell claimed, further adding that the Fed’s decision in September will depend on the “totality of the incoming data and the evolving outlook.”

    In July, the annual inflation rate in the US slowed to 8.5% from a more than 40-year high of 9.1% in June. That was below market forecasts of 8.7%. Data on August 25 showed that the US economy dropped by 0.6% during the second quarter, which was better than estimates of -0.7%.

    Fidelity Digital Assets research analyst Jack Neureuter noted that an aggressive stance against inflation has and likely will continue to be a headwind in the short term for all risk assets, including digital assets.

    During the speech, Powell warned households and businesses will feel the pain as the bank acts to rein in inflation.

    “If there is growing evidence that inflation has peaked, then it’s likely that longer-dated interest rates would fall substantially from their current levels – serving as a possible catalyst for both risk assets and relatively looser financial conditions,” Neureuter added.

    Head of the Kansas City Fed, Esther George, shared more revealing remarks on August 25, claiming that Bloomberg TV rates may go above 4% at some stage.

    “We have to get interest rates higher to slow down demand and bring inflation back to our target,” she said.

    Bitcoin’s price has a history of seeing short-term volatility when Powell speaks – yet not always in a predictable direction. However, investors and analysts generally agree that Bitcoin and crypto markets closely track equities, all of which have been hammered during the Fed’s monetary tightening this year. 

    Both the S&P500 and NASDAQ also briefly fell by about 1% right as Powell’s speech began but quickly bounced back afterward.

    The annual Jackson Hole symposium in Wyoming is typically attended by central bankers, finance ministers, academics, and other market experts all over the world. In 2022, the conference theme is “reassessing constraints on the economy and policy.”

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