Bitcoin Rally Stalls as Fed Chair Powell Warns of Economic Strain from Trump Tariffs
A modest rally in Bitcoin quickly reversed during U.S. afternoon trading on Wednesday, as Federal Reserve Chairman Jerome Powell issued stark warnings about the economic impacts of President Donald Trump’s tariff policy, raising fears of stagflation.
In a speech, Powell highlighted the scale of the tariff increases, noting that the measures introduced thus far were significantly larger than anticipated, with equally significant economic consequences. He warned that these tariffs would likely lead to higher inflation and slower economic growth, drawing comparisons to stagflation—a scenario not seen since the 1970s, where inflation and weak growth coexisted.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said, referring to the Fed’s dual goals of controlling inflation and supporting full employment.
In response to Powell’s remarks, Bitcoin (BTC) saw a sharp drop of 2.5%, bringing its price down to $83,700—approximately 1.5% lower over the last 24 hours. This downturn followed what had initially been a promising rally toward the $86,000 level earlier in the day.
The broader financial markets reacted similarly, with U.S. stocks suffering losses. The Nasdaq, which had been attempting to recover from early session declines, fell by 3.4%, reaching a session low.
Fed Chair Powell’s Hawkish Tone and its Impact on Bitcoin
Powell’s comments come as the Federal Reserve continues to grapple with inflation and economic growth challenges. His hawkish stance appears to weigh on risk assets, including cryptocurrencies like Bitcoin, as Powell suggests that the likelihood of rate cuts in the near future remains low. According to Quinn Thompson, Chief Investment Officer at Lekker Capital, Powell’s emphasis on economic resilience in the face of market volatility suggests that any rate cuts will likely be postponed.
“The May rate cut is firmly off the table, and I wouldn’t say June is a certainty either,” Thompson remarked. “The bull case for Bitcoin and crypto, in general, is liquidity and policy intervention. However, these factors seem far off at the moment, so it’s hard to be constructive on Bitcoin in the immediate term.”
In addition to these economic concerns, Powell addressed the increasing mainstream adoption of cryptocurrencies, highlighting the need for a legal framework to regulate stablecoins. He mentioned that banking regulations surrounding crypto are expected to be “partially relaxed,” which could provide a foundation for future regulation in the space.
Stablecoin Legislation Progresses
The U.S. Senate Banking Committee took a significant step toward regulating stablecoin issuers in March, approving a bill aimed at creating a legal framework for these digital assets. This marks the first committee approval of a stablecoin regulation bill, a crucial step forward for U.S. crypto regulation.
Despite Powell’s comments on the potential for future regulatory changes, the market remains cautious, with concerns over rising inflation, tariff impacts, and the Fed’s monetary policy continuing to weigh on investor sentiment. Bitcoin’s rally has cooled, and it remains to be seen how the broader economic environment and potential regulatory changes will influence the digital asset’s performance in the coming months.
