Here’s everything you need to know about Powell’s Jackson Hole speech

Federal Reserve Chairman Jerome Powell promised to start cutting interest rates during his speech at the 2024 Jackson Hole Annual Economic Symposium on Friday.

This will mark the central bank’s first rate cut since 2020 and is already showing bullishness for the price of Bitcoin.

The pivot of the Fed is confirmed

“The time has come for politics to adjust,” Powell told the crowd. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”

Powell noted that recent data on inflation and the labor market reflected an “evolving situation” where “upside risks to inflation have receded.”

“Although the task is not complete, we have made a lot of progress towards this result,” he said. That said, downside risks to employment have begun to rise, with unemployment reaching 4.2% in July.

“In all, the healing of pandemic distortions, our efforts to moderate aggregate demand and the anchoring of expectations have worked together to put inflation on what increasingly looks like a sustainable path to our 2 percent,” he continued.

The Fed rate cycle

The Fed began raising interest rates in early 2022 in response to rising inflation in the United States, which peaked in June 2022 at a high of 9.1%.

Inflation began to rise in 2021 on the back of stimulative central bank and government policies to sustain the economy during the coronavirus pandemic, combined with supply chain constraints caused by the pandemic itself.

Similarly, the price of Bitcoin exploded largely thanks to near-zero interest rates, rising from $3,500 in March 2020 to $64,000 in April 2021.

Powell admitted during his speech that the Fed was late to recognize how persistent the rise in inflation would be in 2021, having mistakenly characterized the signs as “transitory” until October of that year .

Just as the Fed began to change its policy stance the following month, Bitcoin pivoted from its all-time high of $69,000, destined to plummet to a low of $15,500 twelve months later. Historically, Bitcoin has been strongly correlated with stocks, and both have been very sensitive to changes in monetary policy.

According to CME FedWatch, markets are virtually certain of a rate cut at the next Federal Open Market Committee meeting in September. Most expect a 25 basis point cut, although the market assigns a 32.5% chance of a 50 basis point cut, so rates are below 5%.

The Fed’s next pivot will follow that of neighboring central banks that cut earlier this year. The Bank of Canada began cutting rates on June 5, while the European Central Bank reversed course a day later.

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