On Wednesday, Federal Reserve Chairman Jerome Powell held a press conference following the central bank’s two-day policy meeting. All eyes were on the economy as NASDAQ
Digital asset investors have long made the argument that, similar to gold, assets like Bitcoin will provide a counterbalance to Fed’s monetary policy. One particular area of criticism is the expanding of the Federal Reserve balance sheet. In the last 90 days alone, $2.9 trillion have been were added to the U.S. money supply, or 13.5% of America’s GDP. Yet, defying the usual pattern of history, the expanding of money supply has not resulted in inflation.
Jerome Powell took the stage to address inflation, additional quantitate easing and more. If you missed the press conference, the following are some of the key takeaways.
The Fed maintains that there was no impending recession and that the pandemic brought with it an unprecedented shock to the economy.
“I would just say this: this is the biggest economic shock, in the US and in the world, really, in living memory. We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months. Extraordinary. And appropriately, the response from fiscal authorities has been large, forceful, and very quick by the standards of these things.”
The positive unemployment report in May might have been a fluke.
“I think the labor market, the evidence of one jobs report is that the labor market may have hit bottom in May. We don’t know that, we’re going to see…Despite recent positive jobs report, unemployment remains historically high. The unemployment rate is still 13.3%, which likely understates the unemployment by at least 3 percent.”
Jerome Powell stands with the #BlackLivesMatter movement.
“I speak for my colleagues throughout the Federal Reserve system when I say that there is no place at the Federal Reserve for racism, and there should be no place for it in our society. Everyone deserves the opportunity to participate fully in our society and in our economy.”
Yet, he doesn’t believe the Fed has any role in it…
“Inequality is something that’s been with us increasingly for more than four decades. It’s not really related to monetary policy, or it’s more related to, there are a lot of theories on what causes it, but it’s been something that’s more or less been going up consistently for more than four decades.”
African-American unemployment rate is at an all-time low.
“We do track all unemployment by all kinds of, as you know, all kinds of different demographics, including particularly the African-American unemployment rate, which reached an all-time low since the data started being kept in the modern era. Of course, it’s still close to twice the white unemployment…The rising joblessness has been particularly severe for lower wage workers, for women, for African Americans and Hispanics.”
Upcoming second quarter reports will be even worse.
“The decline in real GDP in the current quarter is likely to be the most severe on record…Full recovery is unlikely to occur until people are confident that it is safe to re-engage in a broad range of activities.”
We are nowhere near hitting inflation.
“Weak demand, especially in sectors most affected by the pandemic is holding down consumer prices. As a result, inflation has fallen well below our symmetric 2% objective.”
Expect the overnight rates to stay at 0% until at least 2022
“…FOMC participants expect, as their baseline expectation, no rate increase at least through 2022… We’re not even thinking about, thinking about raising rates.”
This is different from the Great Depression
“[I don’t] think that the Great Depression is a good example or a likely outcome or a model for what’s happening here at all. I really don’t. And there are just so many fundamental differences. First, the government response has been so fast and so forceful, the origin was quite different. This was an economy that was in a healthy place.”
Expect more quantitative easing and stimulus
“Do whatever we can and as long as it takes to provide some relief and stability, to ensure the recovery will be as strong as possible and to limit lasting damage.”
Powell kept comments on the public markets at a minimum.
“There have been gains in market function, although not fully back to where you would say they were, for example, in February, before the pandemic arrived. We don’t take those gains for granted though.”
Opposing views:
Critics of the Federal Reserve have pointed out that much of the stimulus, quantitative easing, as well as low interest rates, have been utilized to bailout Wall Street and big corporations, rather than benefiting those on main street, creating further disassociation between the stock market and the economy.
Proponents of the digital asset community have expressed concern over inflation, although it seems the contraction in the credit markets coupled with growing demand for dollars globally is keeping inflation at bay for the foreseeable future. It is estimated that over 80% of global trade and debt is being conducted in U.S. Dollars during this economic downturn.
Several data points signal that the American economy was entering a recession prior to the pandemic, setting the stage for more alternative asset classes with greater accountability. Just a last year earlier, on September 18th, the Fed lowered the overnight rate from 2% to 1.75%, and again from 1.75% to 1.5% on October 30th, indicating that we could be heading towards a recession, before a pandemic.
One thing everyone can agree on is – these are truly unprecedented times. The Federal Reserve is steering a ship in unknown and turbulent waters, and creating new tools with each setback, opening the door for new and alternative solutions to the current financial system.
Read the full transcript of Powell’s speech here.
