Market fluctuations increase following Powell’s suggestion that the Fed may ease rate increases in response to banking pressures.

On May 19, Federal Reserve Chair Jerome Powell indicated that interest rates might not need to be raised as significantly as previously thought to decelerate the economy.

Powell noted that “developments” within the banking sector are leading to stricter credit conditions, which are likely to affect economic growth and inflation. Nevertheless, he mentioned that the degree to which credit tightening is influencing inflation remains uncertain.

These remarks were made during his address at the Thomas Laubach Research Conference.

Inflation will ‘take some time’

Regarding guidance, Powell stated that reducing inflation will “take some time,” but the Fed is adjusting its approach to policy tightening as the “risks of doing too much versus too little are becoming more balanced.”

He further explained that the Fed has not yet determined if additional tightening is required and is now in a position to “afford to look at the data and the evolving outlook” for “careful assessments.”

Powell remarked:

“We have come a long way in policy tightening and the stance of policy is restrictive. We face uncertainty about the lagged effects of our tightening so far, and about the extent of credit tightening from recent banking stresses.”

Powell indicated that the pressure on the banking system is the primary factor that will shape the central bank’s decisions regarding rate increases in the upcoming months.

However, he clarified that ultimately, the Fed’s decision will be contingent on the economic situation, and the current guidance could shift if a new shock occurs, such as the Russia-Ukraine conflict or the Covid-19 pandemic.

Crypto markets were keenly awaiting these comments, and price movements suggest a positive reaction from the industry to the news.

Crypto reacts

Bitcoin saw a surge in volatility following Powell’s remarks on interest rate hikes, briefly surpassing $27,000 before dropping to a 24-hour low of approximately $26,718.

Nonetheless, markets appear optimistic about the Fed’s forthcoming actions, as the leading cryptocurrency is trending upward despite minor fluctuations in the hours following the live stream.

As of press time, Bitcoin was trading at $26,927.

Ethereum experienced similar volatility, but its price range was considerably tighter. The second-largest cryptocurrency rose to $1,823 after Powell’s address and then sharply declined to $1,803 before trending upward again.

Ethereum was trading at $1,818 as of press time, just a few dollars shy of its 24-hour peak.

The vast majority of the top 100 cryptocurrencies, including all of the top 10, were trading in the green over a 24-hour period.

Most major cryptocurrencies experienced a positive price spike following Powell’s speech, indicating optimism within the crypto markets.

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