Ways of ThinkingChairman Powell called the new move a “robust updating” of the fed’s policy. The central bank formally targeted keeping inflation above a “moderate” 2% goal, “for some time.” This follows periods where inflation has run lower. In other words, if inflation runs less than 2%, the Fed will take steps to increase it. Historically, the U.S .has tried to keep inflation at or below 2%. Now, they will try to “even out” the policy rate with possible increases. Rarely has the Fed tried to increase inflation when it dipped below 2%. Mr. Powell said the aim of the policy,
…reflects our view that a robust job market can be sustained without causing an outbreak of inflation.The speech was given virtually at the Fed’s annual Jackson Hole, Wyoming symposium. At the same time, with bottomed out interest rates, some feel the Fed has no other choice. Gold Bug (and Bitcoin critic) Peter Schiff suggested this was just a veiled way of increasing inflation.
The move comes after the federal reserve printed trillions of dollars of new money. Federal interest rates will remain low, possibly for years, Powell said. The idea is that low interest rates will encourage consumers and businesses to spend, rather than save capital. This comes as a bid to deal with the continued economic turmoil resulting from the coronavirus pandemic. Stock futures fell ahead of the much-awaited speech, but as of writing, U.S. markets are responding positively.
How long will it take the #Fed to move its average inflation rate target above 2%? My guess is that the official average for the past decade will be north of 2% by the end of next year. The Fed will keep raising the target until the rate is so far above it that it becomes a joke.— Peter Schiff (@PeterSchiff) August 27, 2020
Money Printing GifsThe crypto community responded as it often has when inflation is increased: they tweeted animated gifs of money printers. highest growth too. Sustained encouragement of inflation could spell out higher bitcoin prices. With large corporations beginning to adopt bitcoin in their treasuries, an all-time-high monthly close for BTC may be within reach. But the rise of Bitcoin is far from written in stone. Last week, the Federal Open Market Committee Meeting left a lot in the air. Inflation remained under the normally-targeted 2%, despite an influx of cash into the economy. The Fed’s response to this was unclear at the time, the uncertainty of the fed’s policy lowered assets across the board, including Bitcoin. Some in crypto have turned bullish on Bitcoin as a result of Chairman Powell’s speech.
It would be poetic if Bitcoin went to $20,000 right after this Powell speech 🤩— Ivan on Tech (@IvanOnTech) August 27, 2020
Fed: What Crisis?So far, while unemployment remains high and GDP has fallen, both setting records, the U.S. markets have grown. Some have said the record highs the stock markets have seen is misleading. These indices, like the Nasdaq 100 or the Dow Jones Industrial Average, follow the largest companies. Some of these companies have been poaching failing businesses at low prices. Meanwhile, with people working at home, big tech companies are expanding. Amazon CEO Jeff Bezos recently hit a net worth of over $200 billion dollars, the first person to do so. In the short term, the Fed’s call will mean higher prices on stocks, bonds, and gold, says Economist Mohamed El-Erian.
On the other hand, Economics Researcher Luke Gromen suggested that the Fed was not left with any other options. Either they could embrace higher inflation, or they could let debt default and cause an even worse crisis.
Even more central bank stimulus:— Mohamed A. El-Erian (@elerianm) August 27, 2020
That's what #markets–across the board–have taken away, at least for now, from #Fed Chair #Powell's remarks on changes to the #MonetaryPolicy framework.
With that, the initial reaction is a la #MMT: higher prices for #stocks, #bonds, #gold, etc
In the end, this may not be a huge change. The Wall Street Journal reported that the Fed had been “moving in this direction” for 18 months. This new way of thinking by the Fed may be a true innovation, or a cover-up for inevitable inflation. Either way, admitting to inflation problems could well be a point scored for Bitcoin.
Powell's speech, in plain English:— Luke Gromen (@LukeGromen) August 27, 2020
"There is too much debt in the US & globally. It's hurting growth. This can be resolved 1 of 2 ways:
1) Widespread defaults (including on sovereign debt)
2) Inflate it away
Today we are accelerating Option #2." https://t.co/otarcQeTLW
In line with the Trust Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. BeInCrypto is committed to accurate, unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult with a professional before making any financial decisions.