As Chairman of the Federal Reserve Jerome Powell announced tighter measures to bring down inflation, U.S. stocks tanked, with bitcoin briefly hitting a one-month low.
The Dow Jones Industrial Average lost 3% after the speech, dropping further as markets closed on Friday, Aug. 27, 2022.
Powell’s announcements come when inflation in the U.S. is over 2%, despite a temporary but insufficient respite in July 2022.
Following the July 2022 Consumer Price Index report on Aug. 10, 2022, showing lower than expected inflation figures for July, bitcoin rallied from $22,826 on Aug. 10 to $24,750 on Aug. 11. Ether also rallied, touching $2,000 on Aug. 15.
More pain for crypto as ETH whales cash out
The plunge in the Dow Jones Industrial Average was accompanied by the S&P500 losing 3.3% and the Nasdaq Composite dropping 4%, as investors weighed the effects of high-interest rates kept over a more extended period. Bond prices also crept lower. The total losses in the U.S. equities markets topped $1.25 trillion, more than the market cap of bitcoin and all other altcoins.
The crypto market cap briefly dipped to $936.87 million following the chairman’s speech, with bitcoin temporarily dropping to under $20,000. Ether fell 14% in intraday trading, which cost about $1500, wiping most of the gains accrued in Aug. 2022.
To highlight the impact of high inflation and high-interest rates, the Commerce Department on Friday. Aug. 26, 2022, announced that consumer spending rose only 0.1% in July compared with 1% in June.
This suggests that consumers are tightening their belts, which could mean cashing out crypto.
As reported on CNBC’s Crypto World on Aug. 26, 2022, Ethereum whales are moving their Ether onto exchanges, which in the past has signaled a desire to exit the market. This comes as skepticism abounds regarding the upcoming Ethereum Merge as developers wrestle with ironing out bugs in code that will merge the beacon chain consensus layer with the current Ethereum execution layer.
No interest-rate respite in sight as Fed meeting looms
The pace of the Fed’s rate hikes (0.5% in May 2022 and 0.75% in July 2022) has marked the most aggressive tightening since the central bank began using interest rates as a benchmark in the 1990s.
While many bankers and academics predicted the Fed wouldn’t continue its strategy of slowing economic growth, the institution believes that short-term pain for households and businesses is a necessary price to pay to avoid more pain in the future.
At the July meeting, Chair Powell said an “unusually large” rate increase could occur at the Federal Open Market Committee meeting on Sep. 20-21, 2022, which could cause a further crypto market dump as investors de-risk.
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