Soft economics struggles with Bitcoin.
The Federal Reserve Chairman Jerome Powell has announced that the central bank will not raise interest rates. This decision has left market analysts debating the meaning of Powell’s choice of words, as for the first time in over a year, the Federal Reserve is keeping rates at about 5%, breaking its streak of 10 consecutive interest rate hikes. However, Powell has left open the door to further hawkish rate increases, clarifying that he “shouldn’t call it a skip.” Many people believe that this means the Fed will continue to raise interest rates this year, likely as early as July, in an attempt to cool the economy.
Despite the Fed’s decision to pull back on the most aggressive monetary policy strategy in the U.S. since the 1980s, stocks and crypto crumbled after the press conference. Powell said signs show inflation appears to be easing and will use this pause to assess the impact of the Fed’s strategy.
Many people believe that the Fed’s financial engineering contributed to the collapse of three U.S. banks earlier this year – including the second-largest bank failure on record in the U.S. – by cratering the value of U.S. Treasury bonds. Backed by the full faith and credit of the U.S. government, Treasurys are considered the safest investment in the world. This banking distress could continue to weigh on the economy. According to a WalletHub survey, two-in-five people say Fed rate hikes are forcing them into more debt, and putting their jobs at risk.
Despite Powell’s efforts to push inflation down to the Fed’s standard 2% target, the process of getting inflation down is going to be a gradual one. Though he thinks the right conditions for that “are coming into place.” It’s worth noting the stock market recently entered a bull market (as have most assets, besides crypto), which is a ring for populist rage considering who owns the majority of stocks (i.e. not the people hurt most by higher consumer prices).
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Regarding Bitcoin, there was a time when bitcoin advocates really seemed to think that government mismanagement or incompetence would drive people into the fold. If that was ever true, perhaps around when you could still call bitcoin an inflation hedge, adoption likely only happened around the margins. Bitcoin traded flat during the recent U.S. debt default debate – if ever there was a time for a hedge, or a currency with a predictable issuance schedule. In the U.S., it’s hard to see bitcoin treated as anything more than a curiosity – at least in the short term. However, in places like Turkey and Argentina, bitcoin adoption continues to outpace those countries’ inflation.