US Stocks and Crypto Markets Plunge! Powell's Rate Hike Talk Sparks Panic, Quickly Doused: Not a Prediction or Recommendation for Rate Hike

U.S. Treasury Secretary Janet Yellen recently discussed the potential for interest rate hikes in the United States at an economic forum, causing panic in the trading markets. This led to sharp declines in the U.S. stock market and the cryptocurrency market. Yellen later clarified that she did not predict or recommend a rate hike, while also mentioning that cryptocurrencies still lack regulatory framework.

Yellen: Ensuring the Economy Doesn't Overheat

Yellen stated at The Atlantic's economic forum that the government is formulating post-pandemic economic stimulus policies, which may include raising interest rates. She mentioned:

To ensure the economy doesn't overheat, it may be necessary to raise interest rates. Although Biden's stimulus policies are relatively small compared to the size of the economy, they could still lead to a gradual increase in interest rates. However, these policies are necessary investments to make our economy more competitive and productive.

Triggering Market Panic

Typically, when interest rates rise, the public tends to invest in fixed-income, low-risk products. Conversely, when interest rates fall, the public shows more interest in markets like US stocks, gold, and cryptocurrencies that offer potentially higher returns.

As a result, after the interview was published on the 4th day, it caused market turmoil. The total market value of cryptocurrencies plummeted from a high of 2.2 trillion to 2.1 trillion USD last night; Bitcoin fell to $53,000 at one point, leading to an increase in US long-term bond yields.

In addition, the Nasdaq index plummeted by 1.88%, with ARK Invest's funds, mainly focused on technology stocks, facing selling pressure. ARKK and ARKW saw the highest declines of 3.7%, while Tesla also dropped by 3.7%.

Yellen Clarifies: No Prediction or Recommendation for Rate Hikes

Yellen later clarified at The Wall Street Journal's online CEO Council Summit that she expects to see some price pressures in the next six months, mainly due to economic recovery, supply chain bottlenecks, rising energy prices, and short-term demand for workers.

Yellen clarified that she did not predict or recommend rate hikes. Regarding inflation warnings from economists, including former Treasury Secretary Larry Summers, she claimed that any price increases would be temporary until supply chain shortages and oil prices return to pre-pandemic levels, estimating that inflation will not impact the US economy.

She emphasized her respect for the Federal Reserve's independence and stated that she does not attempt to influence the Fed's decisions. She said:

How to manage monetary policy depends entirely on the central bank. If anyone appreciates the independence of the Federal Reserve, I think that person is me, and I don't think there will be an inflation problem, but even if there is, the Federal Reserve can handle it.

Lack of Regulatory Framework for Cryptocurrencies

In addition to interest rates and inflation issues, Yellen also mentioned the regulatory challenges of cryptocurrencies, stating:

While the US has several specific agencies that can address regulatory issues related to cryptocurrencies, honestly, I believe the US currently lacks an appropriate regulatory framework for this, which is a problem that needs to be addressed.