Jerome Powell says soaring levels of inflation still need to be tackled — and warns the cost-of-living crisis is hurting everyday Americans. Here's what a rate hike would mean for Bitcoin.
The chairman of the U.S. Federal Reserve has confirmed that the central bank is still planning to raise interest rates later this month — despite Russia's invasion of Ukraine.
Speaking to the House Committee on Financial Services, Jerome Powell said the conflict is causing "tremendous hardship" for Ukrainians — and he conceded that the invasion's impact on the U.S. economy is "highly uncertain" at present.
However, Powell's speech argued that soaring levels of inflation need to be tackled nonetheless — not least because it is now running "well above" the Fed's target level of 2%. Acknowledging the cost-of-living crisis this creates, he added:
"We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation."
Given the strength in the U.S. labor market at present, Powell said that he believes it will be appropriate to raise interest rates for the first time in three years when the Fed meets later this month, adding:
"The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook."
What This Means for Crypto
The prospect of interest rate rises have been a source of concern for investors — dampening the performance of both Bitcoin and the stock market.
Edward Moya, a senior market analyst at OANDA, told CoinMarketCap that this month's interest rate rise has already been priced in — but uncertainty remains as to how aggressive the Fed plans to be in the weeks and months ahead.
He believes that the crypto markets can handle higher Treasury yields if the increases are staggered — but Bitcoin will suffer if increases happen too fast. In an interview with the CoinMarketRecap podcast that will be released tomorrow, he said:
"It's not necessarily about the direction, it's more about the pace."
Moya explained that the market "has been all over the place" when it comes to rate hike expectations for 2022 — with anywhere between three and seven increases forecast for this year. He added:
"If it settles towards four to five, over the next few months, that's a very good environment for cryptos."
Elsewhere in the interview, Moya gave an insight into the headwinds that Bitcoin could face in the coming year. He said that he isn't anticipating that other countries will follow in El Salvador's footsteps by making a "major commitment" to the digital asset — something that Samson Mow, who recently quit Blockstream to focus on nation-state adoption, is hoping to change.
Although the analyst believes that things are looking "fairly bullish" for cryptocurrencies in the long term, he said there are a number of short-term risks:
"We're dealing with a global energy crisis and there's a growing likelihood you'll see further restrictions on several countries on what is being used electricity wise. And you could see some mining disruptions."
Following on from the explosive growth that major cryptocurrencies have enjoyed since October 2020, Moya also warned that this will be a "tough year" by comparison:
"It might not necessarily be a stellar year as we're so spoiled and used to. You might continue to see investors focus on other altcoins that are in the earlier stages of growth. And I think that could really limit some of the bullish upside you see with Bitcoin. So through no fault of its own, but it could still be good for the overall cryptoverse."
He believes that there is a possibility that Bitcoin could recapture record highs of $69,000 "over the next year or two."
