The Fed’s annual economic policy symposium was held in Kansas City – an event attended by, among others, finance ministers, central bank governors and academics – almost due to concerns about COVID-19 this year, and there have been several hypothetical statements … … The American dollar will feed to the wolves.

A massive move away from an already unique monetary policy
To be sure, the Fed has maintained its monetary-friendly stance after the Great Recession, despite years of strong growth in the middle of Obama’s administration and weak but steady positive growth the rest of the time.

Before the coronavirus pandemic, the Fed began raising interest rates beyond the zero range, realizing that something needs to be considered in the event of a new crisis. These measures were roughly in line with growing fears by global central banks that monetary policy would fail to sustain growth and threaten to rob central bankers of their teeth in the event of a severe recession.

What has not been understood in the past two decades is that as Chinese imports raged in Western markets, deflationary forces were being bought in large quantities and labor demand faced unique challenges.

The structure of the world economy is changing.

However, central banks around the world continued their efforts to inflation the economy and spur growth – not because there was no growth. When Powell came to power in 2018, the United States actually experienced the longest period of economic growth in its history. But growth was weak.

The path only changes at the wrong time
Between 2015 and 2018, the Federal Reserve raised interest rates nine times, with the rate remaining the same each time. However, this change of direction was quickly reversed with the spread of the 100-year-old pandemic.

In the aftermath of the COVID-19 attack, the Fed and its banks have lowered interest rates to zero as the economy stalls. In March, the Federal Reserve announced a policy of being willing to buy unlimited government bonds and mortgage-backed securities to support financial markets.

Its balance sheet has increased by over $ 3 trillion to nearly $ 7 trillion, with no end in sight. And last week Powell unveiled a long-awaited “average inflation targeting” stance. Since 1977, the Fed’s dual mission has been to maintain maximum employment and price stability. The latter is considered to be inflation of 2%.

Everything changed last Thursday. By targeting average inflation, Powell indicated that the Fed would keep interest rates lower than they should be, despite the fact that the economy could push core inflation above 2% if inflation was previously lower than it has been for a very long time. …

In today’s conditions, the picture is frightening. Since the Great Recession, inflation has dropped significantly to 2%. To retrospectively bring the average closer to the target, Powell and colleagues can set targets around 3% over a longer period.

What average inflation targeting might mean for the dollar
If the Fed maintains a well-adjusted monetary position amid a broader economic recovery, the consequences will almost certainly be asset bubbles in stocks and housing. This is exactly what happened after the exit from the Great Recession. In fact, stocks have already proven their strength since the coronavirus shutdown, as investors continued to support asset prices by regulators.

The Wall Street “never bet against the Federal Reserve” restriction is healthier than ever. Wealthy investors, who are always the first to deal with cheap money, can earn more at lower interest rates. This has resulted in bubbles in valuable assets such as homes, which are pushing the average homeowner out of the market.

Another obvious risk to the economy is currency depreciation. Investors and companies have already seen the writing on the wall. MicroStrategy, a publicly traded business intelligence company, recently exchanged its USD cash holdings for bitcoin (BTC) to avoid losing its balance due to the dollar’s depreciation.

The Winklevoss twins say inflation is inevitable. While gold, oil, and the US dollar have long been valuable assets, gold and oil are illiquid and difficult to store, and the US dollar is no longer a safe valuable asset. They argue that Bitcoin benefits greatly from the actions of the Federal Reserve.

Source: CoinTelegraph