The Fed is currently hawkish on interest as it tries to snuff out inflation. But will its stance survive political pressure to loosen money again amid a recession and Congressional inaction? Opinion for the 'Money Reimagined' newsletter by mikejcasey.
If you’re invested in crypto, it’s hard not to think about the red ink in your wallet right now as concerns over the U.S. Federal Reserve’s interest rate hikes have walloped token prices.
After so many false starts, I’m reluctant to declare that the next cycle is the one in which crypto and Web 3 technologies and ideas rise above the fad-like way in which mainstream investors and businesses otherwise tend to engage with them and instead become more integrated into the global economy. But I do think a dynamic in which central banks feel compelled to deliver
It wasn’t always the case. In the 1930s, the solution to the Depression lay in the rollout of massive government-funded public works projects and the creation of a welfare backstop for those out of work. This eventually drove economic recovery and created an infrastructure base upon which the U.S. economy’s great 20th-century expansion was built.
The upshot of our politicians abdicating their responsibility in this regard is that the burden for stimulating a moribund economy fell to the Fed, which was forced to cut interest rates so aggressively that it quickly hit the so-called zero bound. With no room left to go lower beyond zero percent, quantitative easing became the solution. Buying bonds and, later, other financial instruments, was a way to keep market borrowing rates low for companies that use the capital markets to raise funds.
So, what happens when this year’s financial meltdown leads to the inevitable pullback in financing for everything from startup ventures to homes? Growth will dramatically stall and jobs will be lost. And while that slowdown in demand should help to stall inflation, there’s a legitimate fear that COVID-led supply chain problems will mean that shortages and price appreciation continue.
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