Bitcoin Price Pumps to $39,000 As Fed Chair Powell’s Remarks Encourage Rate Cut Bets – Where is BTC Headed Next?
Fed Chair Jerome Powell’s tone on the risks faced by the US economy just shifted in a dovish direction, spurring a pump in the price of Bitcoin (BTC) to new yearly highs at $39,000.
Powell noted that risks that the Fed doesn’t raise interest rates enough to combat inflation versus the risk that it over-tightens and unnecessarily weakens the economy have become more balanced.
His comments come after recent economic data has shown the US economy cooling and with a key metric of US inflation (the Core PCE Price Index) averaging 2.5% annualized over the past six months.
Previously, Powell had been amongst the Fed policymakers warning that further interest rate hikes remained likely, and his shift in tone comes after his normally hawkish Fed policymaker colleague Christopher Waller said earlier in the week that the argument for rate cuts in 2024 was building.
Powell’s remarks sent US stock prices higher and bond yields tumbling as investors ramped up bets on rate cuts to begin in Q1 2024.
As per the CME’s Fed Watch Tool, the money market implied likelihood of the Fed cutting interest rates back to 5.00-5.25% from 5.25-5.5% by March rose to over 60% on Friday from under 45% on Thursday.
Bitcoin, still viewed by many as a risk sensitive asset, has typically in recent years had a positive correlation to US stock prices.
Meanwhile, Bitcoin has also benefitted in an environment of easing financial conditions, characterized by falling bond yields and rising liquidity.
A rate cutting cycle would be expected to trigger a substantial easing of financial conditions that could be a major bullish driver for the Bitcoin price.
As rate cut expectations rise and, with it, expectations for a more Bitcoin-favorable liquidity backdrop, macro is a
