How Will Crypto React to Jerome Powell US Interest Rate Outlook? 

Key Takeaways

• U.S. Federal Reserve Chair Jerome Powell is expected to provide further insight into the U.S. interest rate outlook.
• Lower interest rates have historically driven crypto valuations upwards.
• The Federal Reserve’s interest rate cut of 0.50% was larger than expected last week.

On Thursday, Sept. 26, policymakers from the Federal Reserve are expected to make speeches that could provide further insights into future U.S. interest rate outlooks. 

Last week, the U.S. central bank lowered interest rates for the first time in more than four years, with Chair Jerome Powell citing job market concerns and an ease to inflation. The market rate cut proved bullish for the crypto market, as most crypto assets broke out of a multi-week sideways movement.

How Will Crypto React?

Lower interest rates mean more accessible capital for investors, often driving increased liquidity into nascent asset classes like crypto and emerging markets.

If the Federal Reserve lowers interest rates, it is possible that crypto valuations could increase. Historically, a lowering of interest rates has triggered bullish momentum. 

Bepi Pezzulli, Director of Research at think tank Italia Atlantica, said that the crypto market will likely experience heightened volatility.

“The possibility of further rate cuts could boost risk-on sentiment, leading to short-term rallies in major cryptocurrencies like Bitcoin and Ethereum,” Pezzulli said.

“However, continued inflation concerns and uncertainty in monetary policy may temper these gains, as investors remain cautious about long-term trends,” he added.

Pezzulli claimed that although liquidity injections from lower rates could drive speculative investments, the overhangs from regulatory and macroeconomic risks will keep the market on edge.

How Do Interest Rate Cuts Impact Crypto?

The impact of Federal Reserve rate cuts on cryptocurrencies has been extremely mixed. 

When Bitcoin emerged in early 2009, factors such as technological adoption and popularity were its main driving factors. 

As the industry has grown and become more prolific, macroeconomic events such as Federal Reserve cuts have had a more reactive effect. 

The 2021-2022 bull cycle is evidence of this. As the central banks around the world dramatically slashed rates to stimulate their economies during the early phases of the COVID-19 pandemic, an influx of liquidity was pushed into the financial system.

Investors funneled large sums of money into cryptocurrencies, and the market saw an increase in institutional capital, with major firms like Tesla buying Bitcoin and other digital assets.

Crypto’s Response to 0.50% Fed Cut

The Federal Reserve’s interest rate cut of 0.50% was larger than expected last week. 

Chair Powell claimed that dramatic action was needed to ensure the country’s high borrowing costs would not damage its economy when inflation settled.

Despite this, the crypto market’s reaction to the interest rate cut was not as exuberant as many crypto enthusiasts hoped.

Following last week’s news, Bitcoin’s price grew 3% to $61,970, and its market capitalization increased to $1.22 trillion.

However, with more interest cuts expected and the end of September and October historically bullish, the trend for crypto could change in the coming weeks.