Crypto Prices Choppy as Fed Chair Powell Warns Strong Jobs Market Could Mean Higher Rates

What – Major cryptocurrency prices saw two-way volatility in wake of a speech from US Federal Reserve Chairman Jerome Powell where he repeated last week’s observation that the inflationary process in the US has started, but that if the jobs market remains strong, interest rates may need to go higher.

Why – Crypto traders were assessing Powell’s remarks for any new indications as to the outlook for interest rate hikes in the US, with the bulls hoping for only a few more rate hikes and then rate cuts before the end of the year.

What Next – Powell emphasized the Fed’s data-dependent approach, meaning attention now turns to next week’s Consumer Price Index data for January. If it shows US price pressures continuing to ease more quickly than expected, this would take pressure off of the Fed to lift interest rates so high.

Major cryptocurrencies saw volatile, two-way trade in wake of remarks from US Federal Reserve Chairman Jerome Powell on Tuesday. Bitcoin swung between session highs in the $23,300s and the $22,800 area before recovering to just above $23,000 as traders assessed Powell’s remarks. The Fed chair reiterated the guidance that he gave in wake of last week’s Fed policy meeting, saying that a few more interest rate hikes are necessary in order to get rates to a sufficiently restrictive level.

He also repeated last week’s observation that a disinflationary process has started in the US, a comment which appeared to trigger some short-lived strength in cryptocurrency markets, as well as modest downside in US bond yields and the US dollar. However, he later remarked that the Fed is taking a data-dependent approach to how much more tightening it will ultimately do, and that if the US jobs market remains strong, then more tightening might be required than the Fed has currently indicated.

Data released last Friday showed that the US economy added a massive 517,000 jobs in January, way above expectations, while the unemployment rate dropped to a new 53 year low at 3.4% despite an uptick in the participation rate. A strong labor market can create inflationary pressures in the economy and force central banks to raise interest rates.

Crypto prices seem to be taking their cue from US tech stocks. The tech-focused Nasdaq 100 index is currently around 1.0% up from its pre-Powell speech levels, hence why cryptocurrency prices have been able to stay in the green on Tuesday, despite Powell’s warnings about a strong labor market potentially resulting in higher rates.

Attention now turns to the next major US data release that will influence the Fed’s thinking in terms of the outlook for monetary policy – US Consumer Price Index data out next week for January. CPI has been cooling faster than expected in recent months, supporting risk assets like stocks and crypto on optimism the Fed won’t need to tighten too much more. Risk assets will thus be sensitive to any upside surprises, as, like with the US labor market data, this could result in higher interest rates.