Jerome Powell’s speech is the most anticipated event of Tuesday, as many expect massive volatility based on the outcome.
Investors are less interested in the other two events lined up before Powell’s address. These two releases, the Manufacturing/Services/Composite PMI for the US and EU, caused a notable stir in the crypto market, but the current day is an exception.
Nonetheless, with investors glued to the Fed’s Chairperson, there are several speculations about what to expect. It is worth noting that the newly appointed made an address on Monday, and a review of what he said could provide a small insight into what to expect.
Stephen Miran’s Speech
Newly appointed Fed Reserve Governor Stephen Miran made several statements while addressing the Economic Club of New York. He began by stating that the current Fed policy is overly restrictive, hindering growth and employment, and warned of dire consequences if it remains unchanged.
He made other significant claims about how the neutral rate of interest has shifted downward due to non-monetary factors, including immigration, trade/tariff policies, regulation, and population growth.
The part of interest for investors was when he mentioned several reasons that could be responsible for a further rate cut. Miran stated that Trump’s recent border and immigration policies, tariffs, regulations, and fiscal/tax policies are having a significant impact on inflation, housing, and supply & demand. He further emphasized how immigration declines reduce housing demand and rental inflation.
In his speech, the governor mentioned two key areas that will need the Federal Reserve’s intervention, citing the labor market and housing sector. He also encouraged a faster approach to changing policies to alleviate the strains on the sectors and added that the previous 25bps cut was not sufficient to address the issue.
The key takeaway from what Miran said is that the Fed must cut rates again.
How Does it Affect Jerome Powell’s Speech?
This is not the first time a fed governor has called for further rate cuts. In his address to the Economic Club of Miami on Aug 28, Christopher J. Waller stated most of what Stephen Miran reiterated. He acknowledged the Federal Reserve’s policies were restrictive.
The governor emphasized that growing inflation is edging close to the stipulated target and called for a rate cut, warning that waiting too long to ease could risk further deterioration in labor market conditions. Nonetheless, the point of interest is that he advocated for more cuts over the next 3-6 months.
Comparing both speeches shows a growing belief that the institution must cushion the effect of growing economic strain by introducing easier policies (rate cuts). The stipulated timeframe also hints at further interventions in 2025.
Jerome Powell’s speech is likely to build on the statements made by the governors. He may acknowledge the fact that inflation is increasing and support calls for further rate cuts. Supporting this assertion are several economic indicators that suggest a near-zero chance of a rate hike. Additionally, the US economy is cooling down, with labor and wages showing growth.
However, the speculation is not conclusive, as the chairperson may cite inflation as a reason for other actions. Conversely, while inflation remains above target, it is not accelerating, which reduces calls for tighter Fed policies.
It is worth noting that while most indicators are leaning toward a further rate cut, there is a chance of maintaining the current rates. In a nutshell, there’s almost a 70% chance that Jerome Powell will adopt the stance of the two governors and a 30% chance that he may advocate for holding current rates. In either case, the crypto market will have massive volatility.
The Calm Before Jerome Powell’s Speech
The global cryptocurrency market cap dropped to a low of $3.78 trillion a few hours ago, but has since rebounded and is now at its opening price of $3.84 trillion. Its latest movement stems from reduced interest, evident by the almost 8% drop in trading volume.
Nonetheless, the latest movement follows the massive wipeout across the market on Monday. The capitalization plummeted from $3.96 trillion to $3.78 trillion, closing with losses exceeding 3%.
The derivatives market saw heavy liquidations during this session, totaling over $1.80 billion. ETH traders were hit the hardest, with nearly $525 million wiped out—more than 94% of which came from long positions. Additionally, rekt capital on Bitcoin neared $300 million.
Investors may count Tuesday’s action as an improvement from the previous session. However, the movement also reflects caution about price action as Jerome Powell’s speech could spark more volatility.
Data from the derivatives market also reflects the cautionary approach by investors. Liquidations are approximately $351 million, down 80% from the previous day. Additionally, volume is down by 20%, as open interest has slightly plummeted.
Volatility Ahead
There are two possible outcomes of Jerome Powell’s speech. The first is a rate cut, and the second is maintaining the current rate. In either case, volatility is assured.
Nonetheless, if the chairperson leans towards easing current policies, the market could surge. Drawing from what transpired on Aug 22 provides insight into how prices may react. The global cryptocurrency market surged by almost 6% following Powell’s address. A closer look shows that the price trend at the time is nearly identical to the current one.
The market was experiencing corrections after a previous spike, and the announcement that followed sparked a flurry of activity. Similarly, the market has experienced notable corrections after the recent uptrend. Investors may expect a 3-5% hike on Tuesday.
However, if Jerome Powell’s speech concludes with no changes to current policies, the market will likely retrace. Investors may expect a 3-5% decline on Tuesday.
