In April, U.S. President Donald Trump actively criticized the Federal Reserve (Fed). For example, last Friday, he stated that Fed Chair Jerome Powell was continuously delaying a cut in the base interest rate.
This week, Trump emphasized the urgent need for interest rate cuts to save the economy, backing it up with new inflation data. It seems that the Fed is prepared to intervene if the situation worsens.
What will happen to the global economy?
Not only Trump is calling for a cut in the base interest rate to alleviate economic pressure. For example, on Monday, Bob Michael from JP Morgan Asset Management suggested that the Fed will certainly have to make cuts outside of its plan, as waiting until the next FOMC meeting on May 7 may not be feasible.
According to him, the recent collapse of the financial market is one of the largest collapses in U.S. history, raising the risk of new economic issues even higher.
The reason is the high import tariffs imposed by President Trump. Initially, these tariffs were seen as a tool to pressure other countries into signing favorable trade agreements, as clarified by a member of the Trump administration.
Boston Federal Reserve Bank President Susan Collins has shared insights on the Fed's stance. She stated that the central bank is ready to support the market with all available tools but will only do so when necessary. This includes potential liquidity issues or market turmoil.
However, Collins' comments came after a significant market collapse last week, raising questions about the health of the U.S. financial system. Therefore, the Fed's response may not be as swift as expected.
The following is a quote from Cointelegraph regarding this situation:
"The Fed does not see liquidity issues. If the situation changes, policymakers will have tools to address market or liquidity-related issues."
Investors should consider Collins' comments as she is one of the twelve voting members of the Federal Open Market Committee (FOMC), the body that decides the fate of the base interest rates that market participants are currently looking forward to.
Meanwhile, the Fed's tools have the potential to stimulate global liquidity and restart the business cycle, which traditionally has a strong impact on Bitcoin prices and the cryptocurrency market in general.
This impact has been confirmed by science. For example, professors Jinshi Zhao and J. Miao from Kingston University in London published a paper in 2024 concluding that "the liquidity of the dollar significantly affects Bitcoin prices."
This relationship has been reinforced after the COVID-19 pandemic, when liquidity began to account for 65% of the necessary factors to change BTC prices. The following is a quote from the study:
"After the pandemic, monetary liquidity has become a key factor influencing Bitcoin prices, even surpassing the fundamental metrics of the network itself."
Macroeconomic analyst Lin Alden has reached a similar conclusion. In her document from September 2024, she stated that Bitcoin serves as a "global liquidity barometer." Specifically, it is influenced by the global money supply M2 along with broader monetary aggregates in the world's major economies.
Meanwhile, the Fed's willingness to intervene and the SEC's softer stance on cryptocurrencies facilitate industry stability. This is likely to positively impact investor interest in digital assets in the near future.
How is cryptocurrency regulation in the United States progressing?
Major U.S. regulators have changed the situation regarding domestic digital assets. For example, on Friday, April 11, the Securities and Exchange Commission (SEC) held the second meeting in a series of five roundtables dedicated to the cryptocurrency industry.
This event is titled "Between a Rock and a Hard Place: Adapting Regulation for Cryptocurrency Trading," according to a report from The Block. Participants included representatives from Uniswap Labs, FalconX, Coinbase, and the New York Stock Exchange.
Currently, the SEC is evaluating feasible regulatory options for digital assets, which will be significantly different from Gary Gensler's approach. This viewpoint is supported by acting SEC Chair Mark Uyeda.
The following is his statement:
"While the Commission is seeking long-term solutions to these issues, temporary and conditional exemptions from legal requirements for both registered and unregistered participants may spur innovation in blockchain technology in the U.S. in the short term."
The SEC's actions clearly indicate a difference in approach compared to the previous leadership under Gensler, who believed that most cryptocurrency activities fell under the SEC's jurisdiction. This led to the Commission frequently suing blockchain companies, sometimes resulting in bankruptcies.
The Fed's willingness to support the market and the SEC's softer stance on cryptocurrencies facilitate industry stability. This is likely to positively impact investor interest in digital assets in the near future.