Crypto prices dropped after U.S. Federal Reserve Chair Jerome Powell warned that higher tariffs and rising prices could slow down the economy. Speaking in Chicago, he said these changes might lead to stagflation, a mix of high inflation and low growth. Powell also talked about keeping the Fed independent from politics and pointed out how uncertain things are in the market right now. However, his promising comments regarding crypto caught investors’ sentiment.
The market saw a decline on Wednesday after Jerome Powell gave a cautious outlook on the U.S. economy. Powell raised concerns about rising inflation, slower economic growth, and the impact of trade policies, especially President Donald Trump’s proposed tariffs. His remarks led to uncertainty across financial markets, with crypto investors reacting quickly to the bearish tone.
Discussing cryptocurrency, Powell said crypto is becoming more mainstream and that a legal framework for stablecoins is “a good idea.” He highlighted the need for consumer protections and hinted at some regulatory flexibility to allow innovation, but added it must be done carefully to avoid attacking the stability of the banking system.
Also read: China Slapped with 245% Tariffs – Bitcoin Drops, Gold Hits Record High
One of Powell’s most concerning messages was about the growing impact of trade policies. He warned that tariffs introduced under Trump’s administration are larger than previously forecasted, even beyond the Fed’s worst-case estimates. These, he said, will likely drive prices up and slow economic growth.
Powell said, “The effects of that are likely to move us away from our goals, so unemployment is likely to go up as the economy slows in all likelihood, and inflation is likely to go up as tariffs find their way into the economy.”
Regarding the government’s debt, Powell described it as unsustainable over the long run, particularly because the U.S. is running large deficits even while the economy is at full employment.
Fed Focuses on Innovation Amid Tough Road
Powell said that artificial intelligence could bring major changes to the economy, classifying it as more than just an improved search tool, comparing it to a more advanced version of a person. He noted that AI is one of the few developments likely to have a significant impact on the economy, though he acknowledged that it’s still unclear how these changes will unfold.
In a nod to potential challenges ahead, Powell said the Fed may face a situation where its two main goals: stable prices and full employment, come into conflict. If so, the central bank could be forced into making “a difficult judgment.”
Lastly, he addressed the Fed’s readiness to support global markets, saying it stands prepared to provide dollar liquidity via swap lines with other central banks. “We want to make sure that dollars are available,” Powell said.
Overall, the negative outlook on the economy caused Bitcoin and major altcoins to drop by nearly 2%. However, the market has started to bounce back after Powell’s comments about crypto innovation.
