Fed Chairman’s Speech And Economic Consequences

US Federal Reserve (Fed) Chairman Jerome Powell urged households and businesses to factor inflation into financial decisions as it would take time and effort to bring inflation back to ideal levels.

Fed Chairman’s Speech

August 26, during the annual policy speech at the annual Jackson Hole Conference in Wyoming. Fed Chairman Jerome Powell affirmed that the Fed will use the agency’s financial tools more aggressively to “attack” inflation, which is still near its highest level in more than 40 years.

Bitcoin fell to near $20,000 this morning after Powell stated that the US central bank might continue to raise interest rates.

Powell argued that a one-month improvement was not enough to bring inflation back to 2% and that restoring price stability would take some time and would mean using Fed tools.

He further explained that failure to restore price stability would mean much greater damage and therefore, households and businesses would see misery in the medium term.

Market prediction

The rest of the crypto market was also in the red following Powell’s comments. Ethereum, the second biggest digital asset, trading for around $1,500, an 11% drop in the past 24 hours. 

While the entire crypto market cap stood at $0.97 trillion, as per CoinCu data. 

The Fed has been raising interest rates this year to combat inflation, which is currently at a four-decade high in the United States.

This has in a strong dollar, while other markets, such as US equities, have suffered as investors flee risk assets in the face of economic uncertainty. Bitcoin and the crypto market have also been affected by this event.

As a result, despite the seemingly beneficial inflationary scenario, which should benefit supply-capped assets, crypto investors face continuing uncertainty. As a result, examining crypto derivatives is critical to determining whether investors have priced at higher odds of a crash.

Because of the price gap between quarterly futures and spot markets, retail traders typically avoid them. Nonetheless, they are the preferred tools of expert traders since they eliminate the constant volatility of financing rates that occurs in contracts.

One must also examine the Bitcoin options markets to avoid externalities peculiar to the futures instrument. For example, the 25% delta skew indicates that market makers and arbitrage desks are overcharging for upside or downside protection.

Powell stated that central banks still bear the burden of dealing with inflation, but that households and businesses now need to factor inflation into their decision-making.

The hawkish outline from Powell may indicate that the Fed does not believe it will be able to reduce inflation in the medium term. Powell has never publicly advocated Bitcoin as an inflation hedge. However, the Fed chair is now urging people to accept inflation and it can last for a long time.

Bitcoin is an asset with unique properties according to inflation. Will it see an increase in volume as Powell concedes inflation must be a factor in current financial strategies?

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

CoinCu News