Bitcoin Drops 1.5% as Fed's Powell Warns of Tariff Impact

Bitcoin experienced a decline as investors grew concerned about the Federal Reserve's perceived delay in reacting to rate cuts. Federal Reserve Chair Jerome Powell, during his speech at the Economic Club of Chicago, emphasized caution regarding the impact of U.S. President Donald Trump’s tariffs on inflation and the central bank’s monetary policy. Powell noted that the level of tariff increases announced so far is significantly larger than anticipated, and the economic effects are likely to be substantial. He warned that the Federal Reserve might face a challenging scenario where its dual mandate goals of maximum employment and stable prices could be in tension.

During Powell’s remarks, the price of Bitcoin dropped by 1.5% to $83,700 within around 90 minutes, according to a crypto data provider. This decline reflected investor anxiety about the Federal Reserve's potential lag in addressing economic conditions. Powell acknowledged that economic forecasts indicate a slowdown but remain positive in terms of growth. He also highlighted that Trump’s tariffs are highly likely to generate at least a temporary rise in inflation, although the long-term effects remain unclear.

Investors are closely monitoring how escalations in Trump’s trade efforts, particularly with China, could influence the Federal Reserve’s rate cut calculus. Fed policymakers had initially penciled in two rate cuts for the year during their March policy meeting. However, after Powell’s remarks, traders began to anticipate more stimulative measures, with some forecasting four rate cuts in 2025. This shift in expectations underscores the market’s concern that the Federal Reserve may be falling behind the curve in responding to economic changes.

Powell also addressed the regulatory backdrop of cryptocurrencies, noting the mainstreaming of the sector and the potential appeal of stablecoins as a product. He emphasized the importance of consumer protections in the crypto space. Bitcoin, which has behaved more like a risk asset than a safe haven amid Trump’s trade war, could see lasting shifts in its dynamic as global economic order changes. Analysts suggest that Trump’s tariffs, by reducing global trade and straining international cooperation, could undermine the foundations supporting the U.S. dollar’s role as the world’s reserve currency, potentially reshaping Bitcoin’s role in the global economy.