Digital currencies And Stocks Decline As Investors Flee Risk Assets After Fed Speech

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Both cryptocurrencies and major stock indexes lost value this morning, as global market participants responded to the hawkish language that Federal Reserve Chair Jerome Powell used in his keynote speech at the Jackson Hole Economic Symposium.

The price of bitcoin, the largest digital asset by total market capitalization, fell more than 5% between roughly 9 a.m. EDT and noon, TradingView figures show.

Ether, the second-largest by total market value, dropped close to 7% in that time, additional TradingView data reveals.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

The S&P 500, a benchmark group of stocks, lost more than 2% during the aforementioned time frame, according to Google Finance.

The Nasdaq Composite Index, a broader group of stocks, depreciated roughly 2.7% between opening and its intraday low, information from Google Finance showed.

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Reining In Inflation

These risk assets suffered losses after Powell delivered his speech this morning during the second day of the Fed’s annual symposium in Jackson Hole, Wyoming.

The central bank chair gave this speech around 10 a.m. EST, emphasizing that not only is price stability the “responsibility” of the Fed, but that “the Federal Open Market Committee’s overarching focus right now is to bring inflation back down to our 2% goal.”

The FOMC, which has 12 members and meets eight times per year, formulates U.S. monetary policy.

This decision-making body is responsible for coordinating open market operations, which in turn have an impact on the federal funds rate, the benchmark rate of the central bank.

During his speech, Powell made references to the use of aggressive policy, emphasizing that “restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance.”

He noted the impact that such an approach could have on economic conditions, noting that “reducing inflation is likely to require a sustained period of below-trend growth.”

The central bank chief noted that while higher interest rates can help bring price stability under control, they will create “some pain” for both households and businesses.

At the same time, Powell stressed that the alternative is worse, as “a failure to restore price stability would mean far greater pain.”

‘Restrictive’ Policy

The Fed official went on to provide additional detail on the central bank’s plans, stating that “we are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”

He mentioned the 75 basis-point rate hikes that have taken place in recent months, indicating that another large increase “could be appropriate” when the next policy meeting takes place.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell stated.

He spoke to the high inflation that has been materializing in the U.S., claiming that it is “largely a result of strong demand and constrained supply” and emphasizing that “we are taking forceful and rapid steps to moderate demand.”

“We will keep at it until we are confident the job is done,” he said in his final remarks.

‘A Very Hawkish Tone’

Brett Sifling, an investment advisor for Gerber Kawasaki Wealth & Investment Management, responded to these statements.

“Powell came out with a very hawkish tone today, probably the most stern speech so far and recommitted to curbing inflation even with high economic costs,” he said.

“In fact, he said that the Fed is using the tools they have, ‘forcefully.’ This eludes to further pain down the road and could likely mean a, ‘sustained period of below trend growth,’” Sifling stated.

“With more rate hikes likely in September, investors have taken a risk-off approach this morning in both the digital assets market and the stock market,” he claimed.

September Policy Meeting

The next policy meeting should shed further light on the plans of Fed officials, as they may opt to once again hike the federal funds rate.

This benchmark rate may very well stay between 3% and 4% for the next few years, according to the results of the FOMC’s June Summary of Economic Projections.

As part of this, members of the committee offered their predictions on what inflation, GDP and the unemployment rate will do in 2022, 2023 and 2024.

Further, they included a forecast for the federal funds rate, with the median prediction being that it will be 3.4% this year, 3.8% next year and 3.4% the following year.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.