Federal Reserve’s Stagflation Warning Sparks Crypto Market Volatility Amid Economic Turmoil

Federal Reserve Stagflation Fears Rock International Financial Markets

In a dramatic twist, the world of finance has been shaken by a surprise alert from the United States Federal Reserve Chairman, Jerome Powell. His comments about the prospect of stagflation—a dangerous combination of economic growth stalls alongside higher inflation—have triggered widespread volatility in the cryptocurrency and equity markets. This comes at a time when market sentiment continues to be weak and extremely sensitive to changes in monetary policy.

Bitcoin and Ethereum Prices Under Fresh Pressure

Bitcoin, the top digital asset, saw considerable stagnation, staying stuck in the tight price band of $80,000 to $90,000. Likewise, Ethereum, the second-largest cryptocurrency in the world by market capitalization, could not cross the crucial $2,000 mark. The total market capitalization of all cryptocurrencies witnessed a sharp fall, dropping from $2.7 trillion to $2.6 trillion due to the changing macroeconomic issues.

Wall Street Suffers Worst Week Since 2020

At the same time, the old-school equity markets felt the heat of Powell's announcement. The week saw the worst decline in stock prices since 2020, with blue-chip gauges such as the Nasdaq 100, S&P 500, and Dow Jones Industrial Average falling into correction territory. This correction marks a drop of more than 10% from their recent highs, representing a considerable loss of investor confidence.

Powell's Prudence: Reluctance to Reduce Interest Rates

Addressing on Friday, Federal Reserve Chair Jerome Powell articulated a firm posture in addressing inflationary pressures. Describing then-President Donald Trump's suggested tariffs, Powell hinted that these may accelerate inflation at the same time that they discourage economic growth.

Our responsibility is to maintain longer-term inflation expectations firmly anchored and to ensure that a temporary rise in the price level does not morph into a sustained inflation issue," Powell said, reiterating the Fed's focus on upholding price stability during short-run economic growth.

The Challenge of Stagflation

Stagflation constitutes a tough situation for central banks across the world. The trap is that means traditionally used to spur economic activity, including reduced interest rates, can be exacerbated by inflation. Raising interest rates to discourage inflation runs the risk of strangling growth as well and spurring job loss.

Powell's conservative mood indicated that the Federal Reserve remains reluctant to bring down interest rates prematurely, irrespective of calls made by some groups to act to that effect.

Divergent Opinions: Trump vs The Federal Reserve

Former U.S. President Donald Trump openly criticized Powell's strategy, calling for a cut in interest rates immediately. Taking to his social media platform, Trump claimed, "This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates," blaming Powell for "playing politics" by not doing so.

But it must be noted that the Board of Governors of the Federal Reserve is an independent governmental agency, exempt from direct political control.

Implications for Cryptocurrencies and Risk Assets

Market observers and economic experts have emphasized that a tighter Federal Reserve position—particularly against the backdrop of threatened recessionary expectations—can signal more woe for risk assets like Bitcoin, altcoins, and equities. In the past, such asset groups have performed optimally in the settings of low interest rates defined by high liquidity levels. However, tighter money and rising rates reduce investor desire for speculative instruments.

With uncertainty ongoing, near-term direction of the crypto market continues to hinge on changing macroeconomic forces and the upcoming policy actions of the Federal Reserve.

This is not financial/medical advice and written using AI so could be wrong.

Source: https://crypto.news/shock-fed-warns-risks-crashing-bitcoin-altcoin-prices/