Ethereum brushes record high after Fed chair says ‘balance of risks’ is shifting

Bitcoin, the world’s largest cryptocurrency, is also up. It’s jumped about 4% over the past day to around $117,000, per Binance. The total market capitalization of all cryptocurrencies has risen 6% to more than $4.1 trillion, mirroring the broader surge in the stock market. The S&P 500 is up 1.5% since trading began Friday morning.

“The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said at a conference in Jackson Hole, Wyo.

Friday’s surge is the latest market shift in a high-stakes wager on whether the Fed will cut rates in September, which would prompt traders to embrace riskier, higher-yield bets, like crypto.

Last week, investors pushed markets higher after the Bureau of Labor Statistics reported that inflation had only moderately increased 2.7% in July, a lower than expected increase that prompted traders to pile into riskier assets like crypto. 

But two days later, the BLS reported a 0.9% increase in the producer price index, a measure of the price swings in the cost of goods produced in the U.S. It was the largest monthly increase in the index since June 2022, and traders withdrew from crypto out of fear that the Fed would likely keep rates steady in response.

As investors awaited Powell’s remarks at Jackson Hole, where Fed chairs have customarily spoken at a conference organized by the Federal Reserve Bank of Kansas City, the crypto markets then dipped again.

But Friday’s markets wiped away much of the anxiety. Traders are now pricing in an 85% chance that the Fed will cut rates in September, according to CME FedWatch, which gives day-by-day estimates of the likelihood of rate hikes or cuts. It was 72% just before Powell spoke.