- US Fed Chair Jerome Powell is unsure whether they will proceed with another cut in interest rates this year.
- The central bank head admitted that the rising inflation and unemployment data present a “two-sided risk” if they proceed with another rate adjustment.
US Federal Reserve Chairman Jerome Powell confirmed they are in a tight predicament. The central bank head’s statement casts doubt on whether another cut in interest rates will follow in the remaining two Federal Open Market Committee (FOMC) meetings this year.
Speaking at the Greater Providence Chamber of Commerce in Providence, Rhode Island, on Tuesday, ABC News reported that Powell is weighing the Fed’s next move. This comes amid the rising inflation and unemployment data, which is posing a “challenging situation” for the institution. In addition, the chairman admitted that the US economy is undergoing a “turbulent period.”
Powell warned that “the downside risks to employment” continue to worsen. Meanwhile, the trajectory of inflation is heading in an “uncertain direction,” with its likelihood remaining high. These elements present a dilemma where an adjustment to the interest rates will potentially have dire consequences if not weighed carefully.
“Two-sided risk means there is no risk-free path,” said Powell.
Increase, Decrease, or Maintain the Status Quo in Interest Rates?
Powell delivered his alarming assessment as last week’s interest rate cut spurred optimism that at least another one will happen before 2025 wraps up. President Donald Trump is also pressuring the Fed to reduce the figures further to catalyze more borrowing and jumpstart economic activity in the US.
The recent FOMC meeting led to the Fed’s reduction of the interest rates from the 4.25% to 4.50% set since December last year to the latest 4.00% to 4.25% rates. However, the president and even Fed Governor Christopher Waller argued that the current numbers are still high. Before the latest cut, the official, rumored to be one of the Trump administration’s bets to succeed Powell, claimed that the previous figures exceeded the ideal interest rates by 1.0% to 1.5%.
If the Fed moves too aggressively, it could leave the institution’s primary goal of price stability—maintaining inflation at a 2% target—unfulfilled. A wrong move could force a potential reversal of the monetary policy later on, which could cause investors to lose confidence in the US market and the Fed’s ability to manage the economy. On the other hand, waiting too long to act could result in a weaker labor market.
In the worst-case scenario, when the Fed suddenly hikes rates, it could be seen by the public as a desperate move to put the reins on the spiraling inflation, and it could do no favor to the ailing labor data.
Potential Effects on the Crypto Market
Analysts expect the crypto market to exhibit varied reactions to the mentioned scenarios. A Fed rate cut generally creates a more favorable environment for risk assets, including cryptocurrencies.
Barring other factors that could shift market sentiment, the Fed’s slashing of interest rates usually drives capital away from traditional, low-return savings as investors move into more speculative investments. This dynamic of increased liquidity and a higher risk appetite tends to boost the crypto market.
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