Key Takeaways
- Fed Chair Jerome Powell said policymakers agreed on a “deliberately cautious approach” to prevent a repeat of the 2019 money-market turmoil.
- Powell acknowledged the loss of key economic data due to the federal shutdown, warning that assessing the economy “could become more challenging” if it continues.
- He cautioned that removing the Fed’s authority to pay interest on bank reserves could cause it to “lose control of short-term interest rates” and trigger financial instability.
Federal Reserve Chair Jerome Powell emphasized a restrained approach to monetary policy. He noted that the central bank had “agreed on a deliberately cautious approach to avoid the kind of money-market strains experienced in September 2019.” His remarks, delivered amid the ongoing federal shutdown, offered limited resistance to expectations of another rate cut when policymakers convene on October 28–29.
While Powell avoided confirming any specific policy direction, he acknowledged that the “economic outlook hadn’t changed much since the Fed agreed to cut rates” in the previous meeting. The comment reinforced traders’ expectations that easing measures would continue, sending U.S. Treasury yields slightly lower and providing short-term support to risk assets, including cryptocurrencies.
The Fed Chairman highlighted that the lapse in federal funding since October 1 has disrupted access to critical government data normally used to refine the central bank’s outlook. “We’ll start to miss that data,” Powell said, cautioning that if the shutdown drags on, assessing the economy’s performance “could become more challenging.” Prior to the data blackout, he noted that available indicators suggested the economy might be “on a somewhat firmer trajectory than expected.”
Powell also addressed growing scrutiny of the Fed’s policy conduct since the 2020 pandemic. His speech came after recent criticism from Treasury Secretary Scott Bessent and several potential successors for the chair position, who have questioned the central bank’s reliance on large-scale balance sheet operations.
In a pointed warning to lawmakers, Powell opposed congressional proposals to revoke the Fed’s ability to pay interest on bank reserves: the mechanism central to transmitting monetary policy since 2008. “The Fed could lose control of short-term interest rates if its policy tool to pay interest on bank reserves was eliminated,” he said. Without that authority, Powell cautioned, the central bank might be forced to execute rapid, large-scale asset sales, potentially “straining market functioning and risking financial turmoil.”
Crypto Market Reaction
Crypto assets initially traded mixed following Powell’s remarks. Bitcoin and Ethereum stabilized a bit as investors interpreted the absence of any hawkish tone as supportive for liquidity-sensitive markets. Traders noted that Powell’s warning about potential market disruptions added an element of caution, with volatility likely to remain elevated ahead of the late-October policy meeting.
Read More: Market Expects 2 More Fed Rate Cuts, Bitcoin and Altcoins to Soar?
