"If interest rates are cut, it's over"...Powell's retirement, a warning sign of market collapse

▲ Jerome Powell, Bitcoin (BTC)/AI Generated Image

Warnings have been raised that the interest rate cut expected by the market could actually trigger an economic recession, due to a combination of factors including the potential retirement of Federal Reserve Chairman Jerome Powell, political pressure, and energy price variables.

On May 1 (local time), Benjamin Cowen, founder of IntoTheCryptoverse, stated on his YouTube channel that the independence of the Federal Reserve is facing a serious threat. He pointed out that the administration's pressure on Fed officials to cut interest rates is a dangerous sign that could undermine the institution's credibility. While Chairman Powell has so far adjusted policies for a soft landing, there are concerns that the policy direction could be distorted if political intervention intensifies.

Geopolitical tensions in the Middle East are also burdening interest rate policy. Rising energy prices are identified as a key variable that maintains inflationary pressure and delays the timing of interest rate cuts. The timing of interest rate cuts, initially expected in early 2026, is now likely to be pushed back to late 2027. The market believes that a shift to an accommodative monetary policy will not be easy as long as inflation-stimulating factors are not resolved.

It was also emphasized that interest rate cuts do not immediately lead to an easing of financial conditions. The Fed can adjust short-term interest rates, but long-term interest rates, such as the yield on 30-year Treasury bonds, are determined by market expectations. In fact, in past periods of interest rate cuts, long-term interest rates have risen, which is interpreted as a reflection of market concerns about re-accelerating inflation. Analysis suggests that long-term interest rates can only stabilize when concerns about employment slowdown and economic recession become more prominent.

Cowen referenced the past resignation of Securities and Exchange Commission (SEC) Chairman Gary Gensler, pointing out that policy changes may appear positive for the market in the short term but could lead to negative consequences in the long term. He explained that at the time, the market reacted to expectations of deregulation, but later, side effects emerged that shook confidence across the industry. Powell's departure could also be interpreted as a short-term positive, but there is a warning that it could increase structural risks.

The current economic situation is assessed as failing to find a balance between stability and recession. Rising energy prices have historically served as a signal for shifts in the business cycle, and there is a prospect that the likelihood of a hard landing for the economy could increase if policy uncertainty expands under a new Fed chair. Market vigilance is growing given that the risk of recession could materialize if interest rate cuts are delayed.

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