Fed Chair Jerome Powell: Time Has Come for Policy to Adjust

• As expected, Jerome Powell indicated that a rate cut is coming in September
• Bitcoin and traditional markets at least initially have moved sharply higher
• Investors will now focus on whether the initial rate cut will be 25 or 50 basis points

After a long wait, central bank rates in the U.S. now appear certain to be headed lower in September after Jerome Powell said the "time has come" for an easing in monetary policy.

"My confidence has grown that inflation is on a sustainable path back to 2 percent," said Powell in his keynote address at the Kansas City Fed Jackson Hole Symposium. "The labor market has cooled considerably from its formerly overheated state," he continued. "We do not seek or welcome further cooling in labor market conditions."

"The time has come for policy to adjust," added Powell. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

Though markets fully expected Powell to indicate that a rate cut was coming at the Fed's September meeting, the tone of his remarks likely leaned a bit more dovish than anticipated. In the minutes following the release of his speech, bitcoin BTC$92,481.05 added more than 1% to $61,900.

A check of traditional markets finds big gains as well: The Nasdaq is higher by 1.7%, while the S&P 500 is up 1.2% and gold has climbed 1%. The 10-year Treasury yield has dipped five basis points to 3.80% and the U.S. dollar index has fallen 0.6%.

After years of near-zero Fed policy rates, the U.S. central bank in early 2022 embarked on a long series of rate hikes, eventually taking its fed funds rate up to the 5.25%-5.50% range in 2023. Since, it's been a waiting game, with the Fed wanting to see crystal clear signs that inflation was meaningfully slowing to its 2% target before moving to begin trimming rates. That day surely has now arrived.

The question going forward will be if the Fed cuts the fed funds rate by 25 or 50 basis points at its mid-September meeting. Markets continue to lean towards 25 basis points, but the chances of a 50 basis point move have grown to 32.5% currently from 24% one day ago, according to CME FedWatch. There remain some key economic reports between now and that September decision – August's employment and inflation numbers among them – which should be key to Fed's ultimate decision.

"Lower real interest rates tend to weigh on the value of the dollar and can support assets that compete with the dollar, like gold and bitcoin," said Zach Pandl, head of research at Grayscale Investments. "The combination of Fed rate cuts, improving U.S. political sentiment around crypto, and net inflows into U.S. crypto ETFs should support bitcoin’s price to return to all-time highs in the coming months."