The comments made by the Federal Reserve Chair at yesterday’s FOMC press conference appear to have had a positive impact on the price of Bitcoin (BTC).
On 3 May 2023, Fed Chair Jerome Powell discussed recent developments in the U.S. banking sector, the Fed’s dual mandate, and the U.S. economy during his opening statement at the press conference that followed the two-day FOMC meeting.
The FOMC comprises twelve members, including the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four Reserve Bank presidents who serve one-year terms on a rotating basis. The Committee holds eight meetings per year to assess economic and financial conditions, determine monetary policy, and evaluate risks to long-term goals. Nonvoting Reserve Bank presidents also attend and participate in discussions.
Powell acknowledged improvements in the banking sector since early March while reiterating the Fed’s commitment to preventing future occurrences of similar events. He cited the need to address rules and supervisory practices following the release of the review on Silicon Valley Bank supervision and regulation.
Emphasizing the Fed’s dedication to promoting maximum employment and stable prices, Powell expressed concern for the hardships caused by high inflation. He assured the public of the Fed’s commitment to returning inflation to the 2 percent goal, stressing the importance of price stability for the economy and the labor market.
The FOMC raised its policy interest rate by a quarter percentage point, with interest rates increasing by five percentage points since early 2022. The Fed will continue to reduce its securities holdings and adopt a data-dependent approach in determining future policy firming.
The U.S. economy experienced a significant slowdown, with real GDP growth at 0.9 percent last year and 1.1 percent in Q1 2023. The housing sector remains weak due to higher mortgage rates and higher interest rates also affect business fixed investment. The labor market is tight, with an unemployment rate of 3.5 percent in March. The labor force participation rate has increased, particularly for individuals aged 25-54.
Inflation is still above the 2 percent goal, with total PCE prices rising 4.2 percent and core PCE prices increasing by 4.6 percent over the 12 months ending in March. Despite elevated inflation, long-term inflation expectations remain well-anchored.
Powell highlighted the challenges high inflation poses, especially for those struggling with essential costs. The Committee raised the target range for the federal funds rate by a quarter percentage point, setting it at 5 to 5.25 percent while reducing securities holdings.
The effects of policy tightening are evident in interest-rate-sensitive sectors like housing and investment, but it will take time for the full impact of monetary restraint on inflation to be realized. Tighter credit conditions may weigh on economic activity, hiring, and inflation, and the extent of these effects remains uncertain.
In conclusion, Powell reiterated the Fed’s commitment to achieving its maximum employment and price stability goals and assured that the Fed would act accordingly based on incoming data and economic developments.
The FOMC press conference started at 2:30 p.m. ET (or 6:30 p.m. UTC) on 3 May 2023. According to data from TradingView, the BTC price was around $28,475. Within four hours, the BTC price surged nearly 3% to reach $29,258.
Currently (as of 5:58 a.m. UTC on 4 May 2023), BTC is trading at around $29,206, up 2.44% in the past 24-hour period (and up 75.27% in the year-to-date period).
Prominent Amsterdam-based crypto analyst Michaël van de Poppe shared his thoughts on Twitter regarding Fed Chair Powell’s comments and their impact on the BTC price, noting that there were no major revelations, only minor adjustments. He mentioned that Powell believes the banking system to be stable and resilient. Van de Poppe also pointed out that the interest rate hiking process seems to be coming to a close, with possibly only one more hike remaining. He suggested that this could indicate a period of strength for Bitcoin.