Bitcoin’s Bullish Momentum Stalls as Powell Warns of Tariff-Driven Stagflation
Bitcoin’s recent rally towards the $86,000 mark experienced a significant setback on Wednesday afternoon following Federal Reserve Chairman Jerome Powell’s comments about the economic risks posed by President Donald Trump’s ongoing tariff strategy. Powell’s warning about the potential for stagflation—a period of rising inflation and slow economic growth—led to a sharp downturn in both Bitcoin and broader markets.
Speaking at an event, Powell acknowledged that the tariff increases implemented thus far were far greater than initially anticipated, with more severe economic consequences, including higher inflation and slower growth. Powell’s warning echoed concerns about the possibility of stagflation, a scenario that plagued the U.S. economy during the 1970s.
“We may find ourselves in a situation where our dual-mandate goals are in tension,” Powell said, suggesting that the Fed’s efforts to control inflation might come at the cost of economic growth.
Following Powell’s remarks, Bitcoin saw a quick 2.5% drop, falling from its near-$86,000 peak to around $83,700, marking a 1.5% decrease in just a few hours. The sharp decline underscored how quickly market sentiment can shift in response to geopolitical and economic risks.
U.S. Markets React to Powell’s Hawkish Tone
Powell’s comments also had a significant impact on U.S. equities. The Nasdaq, which had been recovering from early losses, fell sharply by 3.4% following the remarks, as investors feared that the Fed’s hawkish stance would dampen risk appetite.
Quinn Thompson, chief investment officer at Lekker Capital, noted that Powell’s speech dashed any hopes of near-term rate cuts. He observed that Powell chose not to address recent volatility in the Treasury markets, which he found surprising given the market turmoil. Thompson added that Powell’s continued emphasis on controlling inflation suggests that the Fed will not ease policy anytime soon.
“The prospect of a rate cut in May is now virtually off the table, and even June remains uncertain,” Thompson said. “For Bitcoin and other risk assets, the outlook depends on liquidity and potential government intervention, but both seem distant at this point.”
Powell Weighs in on Crypto Regulation
In addition to discussing tariffs and inflation, Powell also addressed the increasing role of cryptocurrencies in the financial system. He mentioned that as cryptocurrencies become more mainstream, there will likely be a push for clearer regulatory frameworks, particularly for stablecoins. Powell also hinted that banking regulations around crypto may become “partially relaxed” as the industry continues to grow.
This comment follows recent developments in the U.S. Senate, where lawmakers advanced a bill to regulate stablecoin issuers. The bill’s progress is seen as a step forward in creating a more defined legal structure for cryptocurrencies, which could bring greater legitimacy to the market.
Short-Term Pain, Long-Term Potential for Bitcoin
While Powell’s remarks contributed to short-term volatility in the Bitcoin market, the longer-term outlook for cryptocurrencies remains focused on liquidity and regulation. As the Fed continues to manage its dual mandate of controlling inflation and fostering economic growth, Bitcoin investors will be closely monitoring potential policy shifts that could trigger a rebound.
In the meantime, the economic uncertainties surrounding tariffs, inflation, and market volatility are expected to persist, with Bitcoin’s price remaining sensitive to any changes in macroeconomic conditions. Investors will be keeping a close eye on the Federal Reserve’s actions and broader geopolitical developments in the coming months, as these will likely shape the future direction of the cryptocurrency market.
