Monetary policy discussions surrounding the US Federal Reserve (Fed) and uncertainties ahead of the Jackson Hole Symposium have caused volatility in both traditional markets and cryptocurrencies. The statements made on August 21st have investors focused on Fed Chair Jerome Powell's speech on Friday.
Fed's target: inflation again
The latest statement from the Boston Fed emphasized that the US inflation rate is still well above its 2% target. The bank stated that it is committed to bringing inflation back to this level and that current monetary policy will be maintained accordingly. These statements temporarily dampened market expectations of a rate cut.
Despite this, the comments of former St. Louis Fed President James Bullard attracted attention. Bullard stated that he believes the Fed will cut interest rates in September. He also stated that he has held discussions with US Treasury Secretary Janet Yellen regarding the Fed chairmanship. Bullard stated that current interest rates are high and that a 100 basis point cut by 2026 could be on the agenda.
What do market expectations and FedWatch data indicate?
According to the CME's "FedWatch" tool, the probability of interest rates remaining unchanged in September is measured at only 20.9%. In contrast, the probability of a 25 basis point rate cut stands at 79.1%. This suggests that the general market expectation is for interest rates to soften.
The minutes from the Fed's July meeting revealed that policymakers' concerns about high inflation outweighed concerns about a slowdown in the labor market. This led to a slight strengthening of the dollar. However, analysts note that the July data is outdated and markets are primarily focused on Powell's Jackson Hole speech.
Sharp Volatility in Crypto Markets
Macro uncertainties also had a strong impact on the crypto market. Bitcoin fell below $113,000 intraday on August 21st, falling to $112,800. Although it recovered from this level, volatility worried investors. According to market data, more than $500 million in leveraged positions were liquidated. Overly leveraged long positions, in particular, accelerated the decline.
Spot Bitcoin and Ethereum ETFs traded in the US have also experienced four consecutive days of gains. According to data from Bloomberg, total investor outflows reached $1.9 billion. This highlights the weakening of risk appetite ahead of Powell's message.
The Importance of the Jackson Hole Speech
Markets are now fixated on Powell's messages at Jackson Hole. A dovish tone, meaning one that highlights growth risks and supports interest rate cut expectations, could generate renewed upward momentum in crypto assets. However, a hawkish tone, coupled with a firmer stance against high inflation, could deepen the decline in the value of risky assets.
Technical levels are also being closely monitored for Bitcoin. According to analysts, $110,000 represents psychological support, $115,000 represents short-term stability, and $120,000 represents resistance. These levels could be decisive in determining the market's direction following Powell's speech.
In summary, both the Fed's commitment to inflation and Powell's speech in Jackson Hole signal a critical period for crypto markets in the coming days. Investors are closely watching to see how the balance shifts between the strengthening dollar and interest rate cut expectations.
