Federal Reserve Chairman Jerome Powell is stressing the importance of the central bank’s independence. Despite pressure from the White House to cut interest rates in order to boost the economy, Powell remained steadfast in his speech on Tuesday.
Speaking at the Council on Foreign Relations in New York, Powell’s position highlights how money and monetary policy, particularly interest rates and the practice of quantitative easing, are largely impacted by global politics.
“The Fed is insulated from short-term political pressures — what is often referred to as our ‘independence.’ Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests. Central banks in major democracies around the world have similar independence.”
Appearing on CNBC, Jim Reid, global head of thematic research and credit strategy at Deutsche Bank, notes how central banks can spur a pivot toward alternative assets such as Bitcoin, a decentralized currency and payment system that is not controlled by governments or swayed by political objectives.
“It was interesting to see Bitcoin up 180% since April. Some of that is because of the Libra project [Facebook’s new coin], but I think that – the combination of Bitcoin and gold – there’s an element to it that if central banks are going to be this aggressive, alternative currencies do start to become a bit more attractive.”
Bitcoin has hit a yearly high of $13,300, up 17% in the past 24 hours. Gold has reached a six-year high and August futures hit a high of $1,442.90 per ounce overnight on Tuesday, nearly reaching its highest level of $1,444.90 on May 14, 2013. Analysts are attributing the rise to the slowing economy, geopolitical tensions and the prospect of low rates.
As Bitcoin and gold go on a tear, analysts are weighing the US dollar long term and how much room gold has to go, given that the Fed’s position was already factored in prior to Powell’s remarks.
According to James Steel, chief precious metals analyst at HSBC, the US dollar is looking firm in the long run.
“The decision by the Fed to leave rates unchanged was the consensus expectation among economic forecasters, but an outside chance of an early ‘insurance’ cut was reflected in the interest rate market ahead of the meeting. While this should support gold, we wonder how much further gold can rally as much of what the Fed said is already in the price we believe. Also the USD looks firm longer term.”
Crypto analyst Max Keiser, who has said that the Fed’s monetary policy has given Bitcoin the edge, characterizes BTC’s latest resurgence as a lasting trend away from fiat currency.
“Positioning fiat as an outdated, non-open-source operating system synopsizes the paradigm shift perfectly.”
Keiser says the Fed’s monetary policy and “everlasting QE” has given Bitcoin the edge.
“The development in Bitcoin’s worth flipped from bear to bull as soon as the Fed stated it will ease-off tightening and have interaction in everlasting cash printing (‘everlasting QE’). This, by the way in which, is the definition of debt-monetization, which suggests the door has been opened to a hyperinflationary forex collapse of the USD.”
“The dollar has fallen for four sessions in a row against a basket of other currencies to stand at a three-month low of 95.989.”