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Bitcoin Falls as Fed Speech Suggests More Pain Ahead

2 mins
Updated by Dean
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In Brief

  • Federal Reserve Chairman Jerome Powell said today that the Open Markets committee may need to increase interest rates beyond original estimates.
  • He said that strong economic data could also drive up the pace of increases in the federal funds rate.
  • Senate Banking Chair Sherrod Brown said that prices were being driven by higher profit margins.
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The CME’s Fedwatch Tool increased its prediction that the Federal Reserve will raise the federal funds rate by 50 basis points at its Open Markets Committee meeting later this month after a speech by Chairman of the Federal Reserve, Jerome Powell.

Speaking at the Semiannual Monetary Policy Report in front of the Senate Banking, Housing, and Urban Affairs Committee, Powell reiterated the intention of the central bank to continue raising interest rates at FOMC meetings in coming months, with accelerated tightening a possibility should the U.S. economy not show signs of cooling.

Federal Reserve Prepared to Increase Rate Hikes

Powell said the latest economic data came in “stronger than expected,” meaning the Federal Reserve may continue increasing rates beyond its original target.

“If the totality of the data were to indicate that faster tightening is warranted, we’d be prepared to increase the pace of rate hikes,” he confirmed.

After Powell’s opening remarks, Bitcoin fell to roughly 1.7% to under $21,934 before recovering to $22,277.

BTC/USD Hourly Trading Chart Trading View
BTC/USD Hourly Trading Chart | Source: TradingView

On the other hand, ETH, the second-largest cryptocurrency, decreased by approximately 1% from $1565.46 to $1544.45.

Traditional markets saw the Dow Jones Industrial Average fall 1.4%, while the S&P 500 declined about 1.2%.

The Federal Reserve uses interest rates to, amongst other things, realign imbalances in supply and demand that contribute to rising prices. It has increased rates by 4.5% basis points over the past year to cool a red-hot U.S. economy flush with pandemic stimulus money and increasing demand caused by disruptions in global supply chains.

Federal Funds Rate YCharts
Federal Funds Rate | Source: YCharts

The Federal Reserve uses several measures, including the Consumer Price Index, the Personal Consumption Expenditure Index, and U.S. employment data, to ascertain how changes in its monetary policy affect prices for ordinary Americans.

Senate Banking Chair Blames Inflation on Growing Wage Demand

Powell affirmed that a constrained labor market, evidenced by an unemployment rate of 3.4% in Jan. 2023, remains a significant challenge to curtailing prices. He also confirms that there were 1.9 jobs in December 2022. Higher wage demands push prices higher as companies pass on increased labor costs to consumers.

Sharing the opinion of UBS Bank Chief Economist of Global Wealth Management Paul Donovan, Senate Banking Chair Sherrod Brown blamed rising prices on loopholes that allow corporations to expand profit margins and increase wages.

The central bank awaits February 2023 employment data due out later this week that tracks the health of the U.S. jobs market.

The ADP non-farm employment change, which measures the month-on-month change in the payroll information of 400,000 U.S. business clients, is due on March 8, 2023. Data from this report is usually a reliable predictor of U.S. Nonfarm Payrolls, out three days later.

For Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...