In his speech at Harvard University, US Federal Reserve Chairman Jerome Powell gave the message that inflation expectations remain “robust”. Immediately after this announcement, the US 10-year bond rate decreased by nine basis points to 4.35 percent. Additionally, the interest rate increase expectation in the market dropped from 25 percent to 5 percent in a single session.
Fed’s message and first effects on markets
Powell’s statements had the expected impact on the bond market. The US two-year bond rate also decreased by eight basis points to 3.83 percent. In his speech, Powell stated that they did not focus on short-term oil shocks and that they mainly focused on inflation expectations in monetary policy.
Powell also reminded that long-term asset purchases reduce interest rates and support the economy, and that there is no evidence that past bond purchases increased inflation. He added that “they will not fully intervene in this situation until it is clear what kind of impact the economy will face.”
In his speech at Harvard, Powell emphasized that they are determined to bring inflation back to 2 percent and pointed out that there are risks to the economy in both directions.
This decline in bond yields could be structurally supportive for digital assets such as Bitcoin by reducing the opportunity cost of interest in risky assets. However, on Monday, Bitcoin prices fell to $66,500 despite an intraday attempt to rise.
The increase in oil prices is a pressure on the crypto market
As we approached the end of April, the barrel price of WTI crude oil increased by 5.3 percent and closed at $104.80. This level rose above $100 for the first time since 2022. Tension between the USA and Iran triggers supply constraints, pushing up the price of oil and increasing the risk of inflation re-accelerating.
This rise in energy prices tests the Fed’s satisfaction with current conditions, according to Lon Erickson of Los Alamos Investment. Despite Powell’s message that inflation expectations are still solid, it is thought that the persistence of energy prices at this level in the markets may delay the Fed’s interest rate cut expectations.
On the other hand, at its last meeting in March, the Fed left the policy rate constant in the range of 3.5–3.75 percent for the second time. The Fed’s year-end projection foresees only a single interest rate cut.
If the oil price remains permanently above $100, a new acceleration in inflation figures may be seen. This situation causes both a weakening of risk appetite and an increase in volatility in the crypto market.
Critical levels and short-term outlook for Bitcoin
There is currently a two-way pressure on the market created by Powell’s statements and oil prices. If Powell gives soft-toned messages at the FOMC meeting and the oil price falls below $ 95 again, inflation pressure may decrease and an upward area may open for the Bitcoin price.
On the other hand, in the current situation, the market continues to search for direction. Bitcoin price fluctuates in a wide range between 63 thousand and 68 thousand 500 dollars and there is no clear direction. While the level of 63 thousand dollars stands out as the critical threshold, it is considered that sharper declines may occur below this level.
It is stated that the main determining factor here is inflation data and the short-term course of oil prices. If volatility in oil prices and inflation developments cause the Fed to take a new step in interest policy, crypto assets may come under pressure again.
