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- The federal reserve begins to taper as inflation continues to be hotter than expected.
- The FEDs everlasting transitory phase & supply chain issues
- Bitcoin-can it prove to be a hedge against inflation?
The Federal Reserve of the United States has a shoulder-burn responsibility of keeping the dollar value at the same time to achieve max employment to sustain & grow the developed economy. However, the Jereme Powell-led governing body is currently facing a barrage of uncertainties to pursue these goals.
In a recent Federal Open Market Committee (FOMC) meeting, The members of the Federal Reserve led by Jereme Powell decided to taper its historic asset purchasing program, which was induced as monetary support to survive the worst of the pandemic.
Starting in November, the FED will purchase $15Bn fewer bonds each month until the $120 Bn stimuli Is depleted completely. The FED tapered $10 Bn of its treasury bonds & $5 Bn of its mortgage back security & will continue to do so till mid-2022 till the $120 Bn programs ceases completely. The FED however has no plans to increase the interest rates any time sooner, at least while it’s still buying bonds.
The Bond buying program, known as Quantitative Easing [QE] has doubled the FED’s balance sheet to $8.6 trillion and the 0% – 0.25% interest rates have overall contributed to the debt levels of the US Economy which is currently valued at $29 Trillion. All of such also had broad effects on the market, including inflation
The Everlasting Transitory Phase
Apart from major cryptocurrencies, inflation too has witnessed its all-time highs where the CPI has climbed up to 5% while the FED targeted it to be 2%. The Job numbers, salaries & PPI all of them, being atypically high allegedly due to stimulus, yet 5 million fewer people were working when compared to February 2020. While some say people have opened new businesses & others state the fear of covid, a small bunch also blaming the stimulus, it is unclear what’s resulting in lower productivity of the nation.
The Fed chair Jereme Powell also stated the situation was complicated as the nation witnesses sky-high inflation & also with the conditions related to the labor market. However, the FED chair blames the Supply chain issues like semiconductor shortages, delays in transportations rather than stimulus contributing to the inflation fires.
The Cointastic hedge
Bitcoin as an alternative to the monetary system, praised as “mathematical purity” distincts itself from the fiat drama. While the asset is completely integrated with the world, it is still subjected to the FEDs decisions, in regards to its pricing.
According to the experts, While Powell leans more towards employment over price stability it is assumed that Bitcoin will be regarded as an ultimate inflation Hedge, thereby causing it’s prices to go up if not exponentially, at least linearly in the foreseeable future.
Although, According to economist Claudia Sahm, it is believed that BTC could suffer, just like Gold when the FED decides to raise interest rates. However, on the contrasting pole of the spectrum, it is also believed that FED has gone too far this time & has limited ways of winning over inflation. Consequently, even a slight fear of hyperinflation or indirect or misinterpreted messaging by the FED could result in money driving into Bitcoin.
Apart from inflation & hedge, it is also to be noted that Powell’s term as the FED chair comes to an end in the month of February, while the Biden administration hasn’t given a clue whether Mr. Jereme Powell would continue, according to a few investors, it would be a disaster if Biden appoints someone else other than Powell so has anchored the markets well so far.
It remains to be seen whether the FED will keep its promise to taper it completely or how transitory the inflation is & will be or even whether we’ll see Jereme Powell in the office. In an era of such uncertainties, highly decentralized tokens emerge as a hedge against centralized uncertainty.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
