Bitcoin Gains Stalled After Fed Chair Powell Highlights Stagflation Concerns

Bitcoin’s Rally Fizzles Out as Fed Chair Powell Cites Risks of Stagflation from Tariffs

Bitcoin’s brief rally, which had seen the cryptocurrency approaching the $86,000 mark, quickly lost momentum following remarks by Federal Reserve Chair Jerome Powell regarding the impact of President Donald Trump’s tariffs. The rally turned into a sharp pullback during U.S. afternoon trading hours, as Powell warned that the economic effects of the tariffs could lead to stagflation.

In his speech, Powell emphasized that the scope of the tariff increases was much larger than initially expected, with the potential to cause higher inflation and slower economic growth—essentially describing a stagflation scenario reminiscent of the 1970s, when the U.S. faced both stagnant economic growth and double-digit inflation.

“The level of tariff increases announced so far is significantly larger than anticipated,” Powell said. “The economic effects will include higher inflation and slower growth, potentially creating a difficult environment for the economy.”

In the wake of Powell’s comments, Bitcoin (BTC) dropped by around 2.5%, bringing its price down to $83,700—about 1.5% lower than the previous 24 hours. The initial optimism in the market surrounding Bitcoin’s price surge evaporated, with the currency struggling to regain its earlier highs.

U.S. stocks, which had been showing signs of recovery from early losses, also took a hit, with the Nasdaq plummeting by 3.4% to reach a session low.

Fed’s Hawkish Stance Casts a Shadow on Bitcoin’s Outlook

Powell’s hawkish remarks about the Fed’s stance on rate cuts suggested that investors may need to temper expectations for any immediate changes in monetary policy. Powell’s comments were interpreted by some analysts as signaling that the Fed would remain cautious in its approach, potentially weighing on risk assets like Bitcoin.

Quinn Thompson, Chief Investment Officer of hedge fund Lekker Capital, noted in a Telegram message that Powell’s remarks showed little indication of any urgency to reduce interest rates, reinforcing concerns that Bitcoin’s growth could face headwinds in the short term.

“Powell’s hawkish tone suggests a May rate cut is off the table, and June isn’t guaranteed either,” Thompson said. “Liquidity and policy intervention are key drivers for Bitcoin, and they seem distant for now, making it hard to be optimistic in the immediate term.”

Meanwhile, Powell also addressed the growing role of cryptocurrencies in the financial system, noting that as crypto becomes more mainstream, there will likely be a need for clearer regulatory frameworks, especially for stablecoins. Powell signaled that banking regulations around crypto would likely be “partially relaxed” to allow for smoother integration into the traditional financial system.

Progress on Stablecoin Regulation

In a step forward for cryptocurrency regulation, the U.S. Senate Banking Committee approved a bill to regulate stablecoin issuers earlier this year, marking significant progress toward formalizing stablecoin oversight in the U.S. This bill represents the first major move toward regulating stablecoins at the federal level and highlights growing attention to cryptocurrency’s increasing role in the economy.

Despite Powell’s comments on the potential for future regulation, the crypto market remains cautious, with concerns over inflationary pressures, tariffs, and Fed policy keeping investor sentiment in check. Bitcoin’s rally has stalled, and market participants are now awaiting further developments in both the economic and regulatory landscape to gauge the cryptocurrency’s next move.