Yesterday, US stocks fell all three Dow Jones, S&P 500 and Nasdaq after the Fed chair’s testimony. Stock futures also trended lower.
Bitcoin yesterday also had a correction down below $ 22,000 and then recovered back to around $ 22,100. Most major altcoins also correct.
Fed Chairman: interest rates may rise higher than expected
Fed Chairman, Powell attended the meeting hearing in the Senate yesterday. There are three major financial market-related points of interest that were mentioned by Mr. Powell regarding interest rates, unemployment and stablecoins in the crypto market. However, his tone was more hawkish than before.
First, Chairman Powell has warned that interest rates are likely to move higher than central bank policymakers expected. This means that interest rates will not only stay around 5.5-5.75% of the previously predicted interest rate. The latest economic data came out better than expected, so the Fed wants to warn about tighter monetary policy in the near future to slow down the economy’s growth. Mr. Powell seems to want to give direction so that the market and investors are prepared in case interest rates rise higher than expected by the end of 2022.
Next, Senator Warren questioned the Fed’s plan for inflation and interest rates. She is also one of many congressmen who do not want the Fed to continue raising interest rates. Because it can cause the economy to slow down and unemployment to increase. This will affect the people as well as the senators in the presidential election next year.
During the interrogation, Ms. Warren reiterated that the Fed has raised interest rates eight times since last year so quickly. The Fed’s main tool is interest rates, which it uses to slow the economy and increase unemployment. So far, although the economy has not entered a recession, the Fed has not been able to control inflation. There are many factors such as war, supply chain bottlenecks due to the pandemic, … that the Fed cannot control, but the Fed continues to raise interest rates, whether it is effective or not. She said that, if the Fed continues to raise interest rates, unemployment could reach 4.6%, which means the unemployment rate will increase by 1%. It is estimated that about 2,000 more Americans will be unemployed.
Mr. Powell said that rising unemployment is inevitable to keep inflation under control. And if unemployment rises to 4.6%, that’s still a very good rate of unemployment over the past 75 years.
Warren emphasized that the Fed has a very bad history when it comes to controlling inflation and unemployment. Since World War II, the Fed has 12 times caused unemployment to increase by 1% within a year. And not once did the economy avoid a recession. Using unemployment to make sacrifices, but can the Fed ensure that the unemployment rate stops there and inflation will be managed? Often when unemployment rises rapidly, the Fed doesn’t seem to be able to manage it. So, she finds that the Fed does not have a strategy to stop unemployment when it has entered an upward momentum beyond the control of the Fed.
Discussing stablecoins at the Fed hearing
The third issue regarding stablecoins was posed by a big crypto advocate, Senator Synthia Lummis. She asked, the Fed has told a number of congressmen of other agencies that a bank that also issues stablecoins on a decentralized network is not eligible. So what is the reason why a bank with full risk management and KYC elements still has a very high chance of not being regulated.
Mr. Powell replied that those statements mainly refer to decentralized platforms that have risks of fraud and money laundering. This doesn’t mean that they won’t allow banks, just that they likely won’t adhere to the bank’s risk management principles. Therefore, the Fed will still accept regulated stablecoins.
Now, Europe has wanted to go ahead and set out a regulatory framework for the crypto market, specifically stablecoins. Mr. Powell said that this issue with the United States is also very important. However, the Fed is not the authority to manage money and interest rates, but cannot make laws, the law must come from the White House.
Ms. Lummis went on to give the example of Europe’s intention to apply bank regulation on risk management for banks when they want to issue crypto. But here, the Fed and other agencies say that these banks are following risk management regulations that are still not allowed to apply to crypto. At the same time, she wanted to let people hear what the Fed or other agencies may not represent the government. The Fed chair declined to answer because it contained statements from other agencies such as the SEC.
In general, although the hearing is related to interest rates, the issue of crypto and stablecoins is also mentioned. It can be seen that crypto is a topic of interest to many government parliamentarians and they see that this market will continue to grow. And the government is also looking for legislation to regulate the crypto market.
The Thai government is moving to benefit from the growth of the digital asset industry by allowing the issuance of tax-free tokens and cryptos for investment. The Thai cabinet has agreed to waive corporate income tax and value added tax (VAT) for companies that issue investment tokens. The government also hopes that the new policy can make crypto more vibrant and bring more economic benefits.
US federal officials have discussed with management of Silvergate Capital Corp (SI.N) to devise a strategy to help the bank avoid bankruptcy. Silvergate has been trying to assuage investor concerns about its future since reporting a $1 billion loss following the crash of FTX.
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