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Federal Reserve Chair Jerome Powell recently issued a warning on rates, which might have significant implications for various financial markets, including cryptocurrencies.
According to CNBC, Powell cautioned about higher long-term rates as "supply shocks" might provide policy challenges.
In a statement on Thursday, Powell hinted that longer-term interest rates are likely to be higher as the economy changes and policy remains in flux. Powell noted that, while longer-term inflation projections are broadly in line with the Fed's 2% target, the era of near-zero interest rates is unlikely to return anytime soon.
Following the financial crisis of 2008, the Fed kept its benchmark borrowing rate around zero for seven years. Since December 2024, the overnight lending rate has fluctuated between 4.25% and 4.5%, most recently trading at 4.33%, as the Fed has been hesitant to ease policy after dropping its benchmark rate by a full percentage point last year.
What does it mean for crypto?
The possibility of sustained higher interest rates can influence investor behavior across asset classes. In traditional markets, higher rates often lead to reduced risk appetite. For the cryptocurrency market, which has been characterized by higher volatility and speculative investments, this shift could result in decreased inflows as investors seek more stable returns elsewhere.
It is worth noting that cryptocurrencies have been viewed by many as a hedge against inflation and currency devaluation. If higher interest rates are accompanied by persistent inflationary pressures, certain sectors of the crypto market might still attract investment.
The cryptocurrency market is down in the early Thursday session, with the majority of assets extending their losses from the beginning of the week. Bitcoin and Ethereum encountered resistance after reaching critical price levels; major cryptocurrencies such as XRP, Solana, Cardano and Dogecoin fell roughly 5% as traders took profits after a recent rally.
Vladislav Sopov
Dan Burgin