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Bitcoin Faces Volatility Amid Fed Caution on Interest Rates

Powell's remarks to Senate Banking Committee on Tuesday emphasized the Fed's vigilance against inflation despite disinflationary pressures.

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Bitcoin's slight correction during US trading hours underscores ongoing uncertainty as Federal Reserve Chair Jerome Powell's cautious stance on potential interest rate cuts adds to market volatility.

Powell said that the US is "no longer an overheated economy" and that the case for interest rate cuts is becoming stronger. He added that inflation had been improving in recent months and that "more good data would strengthen" the case for looser monetary policy, Reuters reported.

Impact on digital assets

"Bitcoin is not yet fully out of its downward trend, as it experienced a slight correction during US trading hours—a recurring pattern over the past few weeks. Yesterday, Jerome Powell commented on potential rate cuts, stating that while we still have quite a way to go, they would occur before inflation reaches 2%, provided that disinflation has sufficient momentum," BRN analyst Valentin Fournier said.

The cryptocurrency market reacts sensitively to Federal Reserve policy signals. Powell's cautious approach suggests a measured response to economic indicators, potentially prolonging market uncertainty. This cautious sentiment could influence investor sentiment towards Bitcoin and other digital assets in the short term.

Fournier pointed to broader economic indicators, such as a declining Services Purchasing Manager’s Index and higher unemployment levels, hinting at a more severe US recession than previously anticipated. This scenario could accelerate interest rate cuts and government stimulus, potentially catalyzing a rally in cryptocurrencies.

Despite recent market corrections, optimism persists regarding digital assets. Factors such as upcoming economic data releases and potential market dynamics like short squeezes could provide opportunities for Bitcoin to regain momentum and exceed previous highs.

"Our view remains optimistic," Fournier said. "Bitcoin has absorbed prior selling pressure and could benefit from upcoming CPI data and a potential short squeeze. We anticipate cryptocurrencies to outperform traditional assets in the coming months."