That's it, Jerome Powell has announced the drop in rates from Jackson Hole. Bitcoin is already welcoming the news, rising 5% in a matter of hours.
Jackson Hole
Jackson Hole is the Fed's annual major meeting. It brings together many central bankers from allied countries. Traditionally, the Fed chairman uses this opportunity to signal a major change in monetary policy.
For example, in 2010, Ben Bernanke revealed his intention to launch the famous “QE” (Quantitative Easing). That is, to print money to buy back public debt (and securities backed by real estate loans). This speech caused a 28% increase in the stock market over the following eight months.
Mr Bernanke gave another famous speech in 2012 to launch a third QE. It was also from Jackson Hole that European Central Bank President Mario Draghi announced European QE. The European stock market appreciated by 27% over the next eight months.
While Jerome Powell had not, until yesterday, used Jackson Hole to make any major statements, he had nevertheless been implacable in the face of inflation in his speech last year:
“Price stability is the responsibility of the Federal Reserve and is the foundation of our economy. Without price stability, the economy doesn't work for anyone. […] The pain of high inflation falls hardest on those least able to bear it.
Rising interest rates, slowing growth, and a deteriorating labor market will lead to lower inflation that will not be painless for households and businesses. These are the unfortunate costs of reducing inflation. But failing to restore price stability would be far more painful.
Bitcoin was waiting for this drop in rates
Bitcoin appreciated by 5% in the wake of Jerome Powell's speech. The euphoria is linked to this little phrase thrown in the middle of his speech :
“The time has come to adjust monetary policy. The direction to follow is clear. The timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Jackson Hole is still the scene of choice for signaling a change in the monetary tide. Following the central banks of Switzerland, Sweden, Canada, the Eurozone and England, the Fed will also ease its monetary policy. The first rate cut will probably take place on September 18.
The markets had anticipated this, as ETFs suggest. The latter show 11 days of positive flows out of the last 13 days.
The US stock market and gold are also very close to record levels. And as we have highlighted in this article, bitcoin still shows a positive correlation with stock market increases. Added to this is now a return to growth in the overall money supply (a logical consequence of the rate cut):
When liquidity increases, BTC price follows »
So, after 25% inflation over the last three years (and more for food), things seem to be stabilizing. The overall money supply will increase again and lift all asset prices.
The planets are finally aligned. Halving, ETFs, accounting rules, endorsement by the Republican Party and the potential creation of a strategic reserve of one million bitcoins by the US government. The road to $100,000 is clear.
Not to mention that we should expect real inflation (not the one that is disguised by statistics institutes) to remain high. On this subject, don't miss our article: What Bitcoin Will and Won't Be.
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