Investors will be closely watching Powell’s comments on the Fed’s inflation targeting steps
This Tuesday, the Committee on Banking, Housing, and Urban Affairs will hold a hearing on “The Semiannual Monetary Policy Report to the Congress,” with Federal Reserve Chair Jerome Powell being the witness.
In remarks prepared for his appearances on Capitol Hill, Powell signaled that interest rates could end up being higher than expected, sending Bitcoin and stocks lower.
Powell acknowledged that high inflation is causing significant hardship and that the Federal Reserve is committed to returning inflation to its 2% goal.
He reviewed the current economic situation and outlook, noting that inflation has moderated somewhat but remains well above the Federal Open Market Committee’s objective. Powell also talked about monetary policy, noting that with inflation well above their goal and the labor market remaining tight, the FOMC has continued to tighten the stance of monetary policy.
Investors were awaiting Powell’s comments on the Fed’s steps aimed at bringing inflation toward the 2% target, with the commentary expected to determine the market’s direction near-term.
Bitcoin was trading flat ahead of the appearance amid concerns about regulatory pressure and investor concerns about inflation and interest rates. Due to his hawkish remarks, the flagship has now dropped to an intraday low of $22,085 on the Bitstamp exchange.
During Powell’s testimony, investors and lawmakers will be looking for clues as to whether he favors another 25 basis point rate increase or a more hefty 50 basis point increase at the next Federal Open Market Committee meeting on 21-22 March.
Powell may withhold judgment on the matter due to upcoming jobs data and another month of inflation data.
The Fed chair is also expected to face questions on banking regulation, with Democrats urging the Fed to tighten capital standards for the largest institutions, while Republicans seek a looser treatment.
The Fed’s monetary policy decisions were behind Bitcoin’s massive underperformance in 2022. Year-to-date, however, Bitcoin has outperformed the tech-heavy NASDAQ, as well as the S&P 500 and Dow Jones indices. Bitcoin’s year-to-date return stood at roughly 30%, far exceeding the performance of the major stock indices and gold.
The cryptocurrency’s most recent underwhelming performance has been linked to concerns about growing regulatory pressure, the implosion of crypto-friendly bank Silvergate Capital, and increasing investor concerns about inflation and interest rates.
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