Powell’s Policies Regarding Inflation Could Harm Crypto

March 22, 2022 7:51 pm

The Fed recently announced that it is raising interest rates in an effort to control inflation.

A rise in interest rates has not occurred in over 3 years now, and could potentially lead to a recession, as spending on leverage will be discouraged, and those already over-leveraged will turn to reducing the amount of debt they hold, rather than making new purchases.

Crypto markets are no different, and are in fact highly correlated to traditional markets…

When everyone is making money the cash pours into the markets; when investors and consumers alike feel the squeeze of both rising inflation and the reactive rate hikes the cash pours out.

Rumors are circulating among certain circles that the Federal Reserve Bank is planning on introducing several of these rate increases by year’s end in an effort to control inflation.

This situation could mean a potential protracted bear market for crypto, digital assets, and the stock market.

Here’s what Powell had to say about the troubling levels of inflation currently plaguing the U.S. Dollar:

According to Coindesk:

But looking ahead, the Fed’s hawkish stance could push down crypto prices, just like it will likely hurt equity markets.

“Crypto is acting more like a risk asset than an inflation protection,” Marc Chandler, Bannockburn Global Forex managing director and chief market strategist, said Tuesday on CoinDesk TV.

 

The Wall Street Journal explains that Powell is essentially forced to pursue ‘aggressive’ interest rate hikes due to poor fiscal and monetary policies made in response to the Covid-19 pandemic:

Some critics say the Fed is being forced to aggressively raise interest rates now because officials waited too long last year to withdraw stimulus.

At last week’s Fed meeting, St. Louis Fed President James Bullard dissented from the policy decision in favor of a larger half-point increase and pointed to the potential for higher inflation to lead inflation-adjusted interest rates to decline, even as the Fed raises nominal interest rates.

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