On Thursday, November 7, the US central bank, the Federal Reserve (Fed), made a new cut in interest rates. Afterwards, the market focused its attention on the speech of Jerome Powell, the chairman of the Fed.
One of the highlights of his speech was a question related to the election. When asked if he would resign from his post in the event of Donald Trump's re-election, Powell denied it and said he would serve out his term. This comment was interpreted as reassuring, which significantly boosted risk assets.
The biggest gainer was Bitcoin (BTC), which hit a new all-time high at $76,990. Although the price retreated slightly soon after, it remained above $76,000.
Meanwhile, US stock indices also hit new highs. The S&P 500 and Nasdaq rose 0.8% and 1.5% respectively. The market is now anticipating a possible further rate cut at the December meeting, which could lead to a year-end with further rate hikes.
Bitcoin and the impact of cuts
The Fed cut interest rates by 25 basis points , bringing them into a range of 4.5% to 4.75%. This cut, although smaller than the 50 basis point cut at the previous meeting, was in line with market expectations.
However, Jerome Powell stressed that monetary policy remains “tight,” stressing that the main objective is to avoid a spike in inflation.
According to Powell, the US economy continues to expand solidly, putting pressure on prices. According to official data, GDP grew by 2.8% in the second quarter, and consumer confidence remains high.
The only worrying figure was employment, which fell short of expectations. Still, Powell stressed that this does not indicate a recession, but rather temporary effects related to strikes and hurricanes.
Market reactions
Following Powell's remarks, the probability of an additional cut in December rose to 75%. In addition, US Treasury yields fell, with the 10-year bond standing at 4.33%, while the dollar weakened by 0.7% .
In response, gold rose 1.8%, and Bitcoin increased its value by 1%, reaching its all-time high of $76,990 again.
Conclusion
During his speech, Powell addressed key economic factors influencing the U.S. labor market. Although unemployment has declined slightly over the past three months, it remains at low levels and under tighter conditions compared to the pre-pandemic period.
According to the Fed chairman, this situation continues to put downward pressure on inflation in the labor markets. He therefore sees room for further rate cuts, as long as inflation continues to approach the 2% target.
Powell also indicated that the pace of cuts would be slower if inflation remained high and unemployment rose. This suggests that the Fed will continue to carefully evaluate economic data, such as the recent inflation report and a weaker-than-expected jobs report, which reveal areas of caution in the economy.
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