Crypto Surges as Fed Recognizes Disinflation - But Can Crypto Deal With a US Recession?
Cryptocurrency prices lurched higher on Wednesday in wake of more dovish than expected remarks from Fed Chairman Jerome Powell, who was speaking as usual in the post-Fed policy announcement press conference. Risk assets, including stocks, surged as Powell acknowledged that the central bank has made progress in its fight against inflation and said that the “disinflation process has started”.
Powell’s comment came shortly after the Fed announced a widely expected 25 bps hike to the Federal Funds target range to 4.50-4.75%. Bitcoin was last trading close to $23,700s, now up around 2.7% on the day and up closer to 4.0% versus its prior post-Fed lows in the $22,700s.
Ethereum was last up an even more impressive over 3.5% on the day in the $1,640s. The world’s second-largest cryptocurrency by market capitalization is now threatening an upside break of a short-term pennant structure that would open the door to a quick run higher towards resistance in the $1,800 area. Meanwhile, major altcoins like Cardano, Solana, Polygon and Polkadot are all up 4-8% versus their pre-Fed policy announcement levels.
Powell had the chance to push back against the recent easing in financial conditions (i.e. the January move higher in stocks and crypto and lower in the US dollar and yields). However, he said that the Fed’s focus was on longer-term economic trends, not short-term market moves.
Many strategists had been warning prior to today’s Fed meeting that Powell might look to ramp up the harsh commentary in order to dampen “animal spirits” in the market, based on the assumption that the Fed doesn’t want a premature easing of financial conditions to make their job of getting inflation back to the 2.0% target more difficult.
As it happened, harsh
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