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The Federal Reserve has once again left markets scratching their heads. Just weeks after Fed Chair Jerome Powell sounded firmly hawkish, he now hints at something unthinkable, abandoning the long-standing 2% inflation target.
This has shaken global markets so much that almost $1 trillion in value disappeared in a single day.
Now, traders are struggling to make sense of whether this is a bold evolution in policy or simply a sign of desperation.
FED From Hawkish to Hesitant
During the Q&A at the July 30 FOMC meeting, Powell warned that inflation was still above target, even though job goals were met. Inflation rose from 2.9% to 3.1% in just two weeks, backing his concern.
The Fed has kept rates high for over a year, but now signs of slowing job growth and rising unemployment are creating new risks. Powell said the labor market is in a “middle ground,” not strong enough for confidence, but not weak enough for immediate action.
At Jackson Hole, Powell surprised markets by suggesting the Fed may ease away from its strict 2% inflation goal. This could mean pausing rate hikes or even cutting rates to protect jobs.
For many, this abrupt change raises more questions than answers.
Why $1 Trillion Vanished?
Following Powell’s comments, markets reacted with anxiety. Investors, always sensitive to Fed signals, panicked at the possibility of a policy reversal. Within hours, almost $1 trillion in market value was gone.
This sharp sell-off shows how nervous investors are about whether the Fed can still manage a “soft landing,” slowing inflation without crashing the economy.
Policy Evolution or Policy Desperation?
Investors are unsure if Powell is being flexible with new data or simply reacting too late. U.S. job reports keep getting revised lower, while trillions in new government spending add more pressure.
Some analysts fear stagflation, a mix of high inflation and slow growth, could return. Others worry that ongoing global tensions and policy delays could make things worse.
Bitcoin as a Safe Haven?
Meanwhile, investors believe this could be a turning point for Bitcoin. If trust in central banks continues to fade, Bitcoin may be seen as a stronger hedge against inflation and unstable policies, acting as a guide when traditional markets struggle.
Although the global crypto market cap fell 2.4% to $3.9 trillion. Bitcoin dropped 2.6% and now trades below $112,000, while Ethereum slipped to $4,641.