After a long wait, the US central bank now looks certain to cut interest rates in September after Jerome Powell said it was “time” to ease monetary policy.
“I am increasingly convinced that inflation is on a sustainable path back to 2%. The labor market has cooled considerably from its overheating. We do not seek or welcome further cooling in labor market conditions. It is time for policy to adjust. The clear path and timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” Powell said at the Federal Reserve’s Jackson Hole Symposium in Kansas City.
While markets fully expected Powell to indicate that interest rates would be cut at the Fed's September meeting, the tone of his speech may have been a little more dovish than expected. Within minutes of the speech, Bitcoin was up more than 1% to $61,900.
BTC 4-hour price chart | Source: Tradingview
A look at traditional markets also showed big gains: the Nasdaq rose 1.7%, while the S&P 500 rose 1.2% and gold rose 1%. The yield on the 10-year Treasury note fell 5 basis points to 3.8% and the US dollar index fell 0.6%.
After years of near-zero Fed policy rates, the US central bank began a long series of rate hikes in early 2022, eventually bringing the fed funds rate to 5.25%-5.5% by 2023. Since then, the Fed has waited, as it wants to see clear signs that inflation is slowing significantly toward its 2% target before starting to cut rates. That day is surely coming.
The question going forward is whether the Fed will cut the fed funds rate by 25 or 50 basis points at its mid-September meeting. Markets continue to favor 25 basis points, but the odds of 50 basis points have risen to 34.5% from 24% a day ago, according to CME FedWatch. There are still several key economic reports between now and the September decision — including August jobs and inflation numbers — that will be key to the Fed’s final decision.
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