Last week, jerome powell testified in front of the u.s senate banking committee as part of the confirmation process for his second term at the federal reserve. Now, jerome’s comments have historically had significant impacts on the economy and what he said during his confirmation hearing could have profound implications for the crypto market. Today, i’m going to briefly explain what the federal reserve is. Give you a bit of background on jerome powell.
Tell you what he said at his confirmation hearing and what it all means for crypto. Before we make the money printer go, there’s a disclaimer. I need to serve i’m not a financial advisor and i’m sorry if that strikes a nerve, i’m just an educator and entertainer who occasionally uses long financial words. Please contact a financial advisor if you want your portfolio to purr now, if this is the first time we see eye to eye, my name is guy and crypto content is what i supply. In contrast to moon boys and shills, i focus on the facts and feed you orange pills, coins, tokens news and reviews explained in a way that you’ll understand, regardless of your skills.
If this is the kind of stuff that gives you a thrill subscribe to the channel and ping that notification bell to make sure you get your fill time can be hard to come by, which is why i’ve left timestamps below that you can use to skip ahead To any interesting topics you find the longer you stick around the more this video will get found. So do keep that in mind. Okay, that’s it for my rhymes. Let’S take a look at jerome powell’s lines to understand the importance of what jerome powell said during his confirmation hearing. You need to know a few things about the federal reserve or the fed as it’s more commonly referred to, so the fed is the central bank of the united states and though it is technically independent of the u.
government. The seven members which make up its board are nominated by the u.s president and confirmed by the senate aka high-ranking politicians. The fed was established by the u.s government in 1913 as a response to a three-week long run on the banks in 1907, which was ultimately caused by certain financial institutions, borrowing beyond their means.
For those who don’t know a run on the bank is when everyone goes to the bank to withdraw all their money. At the same time, only to find that the bank doesn’t have their money because it’s been lent out or lost, which causes even more people to run to the banks and so on until a financial system collapse. Naturally, the fed’s initial purpose or mandate was to ensure that regular banks always have liquidity money to meet demand to make sure these bank runs never happen again. However, in 1977 the fed’s mandate was expanded to quote, promote maximum employment and price stability, in other words, keep unemployment and inflation low. Not surprisingly, this dual mandate was introduced.
Following the extreme inflation the united states saw in the early 70s. The fed was eventually able to get inflation under control in the early 80s by raising interest rates to almost 20 percent as part of its new mandate. Now the fed typically raises interest rates by selling government bonds, aka government debt and lowers interest rates by buying government bonds. Now it’s a bit more complicated than that, but let’s keep it simple for the sake of this video and our collective sanity. Now, high interest rates make borrowing more expensive and incentivize people to save, rather than spend, since their money will be worth more tomorrow than it is today.
This eventually reduces asset prices, but runs the risk of harming productivity and employment by extension. Conversely, lowering interest rates makes borrowing less expensive and incentivizes people to spend, rather than save. This increases the money supply via bank borrowing, which runs the risk of increasing inflation, but this eventually creates new jobs, which lowers unemployment and increases productivity. This means that the fed is constantly engaged in a sort of balancing act, making sure interest rates stay low enough to stimulate the economy, but also making sure that interest rates don’t stay too low for too long or else there’ll be too much inflation. The only problem is that this balancing act hasn’t exactly gone to plan.
As you can see, the fed has been gradually reducing interest rates over the decades and every time it’s tried to increase interest rates. It’S had to reverse course. This is essentially because individuals and institutions have borrowed too much and have become addicted to low interest rates, raising interest rates even by a little bit means. Many of them must start selling assets to pay back their debts, and this causes asset markets to crash across the board. Again, it’s a bit more complicated than that, but let’s keep it simple as a result of these and other factors.
The fed finds itself between a rock and a hard place, raise interest rates and risk crashing every asset market in the world, or keep interest rates, low and risk hyperinflation in every country that uses or is dependent on the us dollar, which is basically all of them. Luckily, the world has a savior and his name is jerome. Powell. Jerome powell is the current chairman of the federal reserve and he was recently renominated to serve a second term by u
S president joe biden now jerome has an interesting history, to say the least. He holds a bachelor’s in politics and a law degree from georgetown university, where his grandfather used to teach following a law firm fling.
He worked for a wall street investment bank whose chairman went on to become the secretary of the department of the treasury. Jerome was subsequently hired by the department of the treasury. Nothing out of the ordinary, i assure you, for those unfamiliar the department of the treasury is the part of the u.s government, that’s in charge of all the money, and it works closely with the federal reserve. The treasury is currently headed by janet yellen and more about her later after a few years at the treasury, jerome went back to work on wall street until he was nominated to the aforementioned federal reserve board of governors by former u.
president barack obama in 2012.
Now this move took many by surprise, because jerome is a registered republican and barack is a democrat. This bipartisanship is believed to be due to the fact that jerome has lots of friends on both sides of the aisle and has reportedly done a very good job of not letting politics cloud. His judgment, jerome’s 2012 nomination consequently marked the first time in over 30 years that a fed board member had been chosen by a president from the opposing party in 2018. Jerome powell was nominated by former u.
president donald trump to become the chairman of the fed. The highest possible position at the institution upon taking up his post, jerome immediately began raising interest rates which drew the ire of president trump, who insinuated on twitter. Where else that jerome was a bigger enemy to the united states than the leader of a country which the former? U
S, president is famous for pronouncing. You know which one, as i pointed out in the image earlier, the fed’s so-called taper tantrum in 2018, didn’t last long because it caused asset markets to crash in 2019.
This prompted the fed to reverse course and start buying bonds again and the markets rallied on the news of the announcement when the pandemic began, the fed doubled down on its government debt purchases to support the economy, which was obviously scared shitless if you’ll pardon my french. The fed even started buying corporate debt, something which it’s technically not allowed to do now. As far as i understand, a loophole was made possible by holding these assets with the department of the treasury, which is coincidentally, headed by janet yellen, the former chair of the fed. In any case, these actions earn jerome lots of praise from then president trump, but jerome warned both politicians and the public that the fed’s, relentless spending would cause serious inflation and wealth inequality in a testimony early on in the pandemic. In 2021, we started to see the inflationary effects of the fed’s monetary policy, with record inflation numbers being reported almost every month.
Many analysts believe that jerome would have moved to increase interest rates sooner were not for the fact that his term was coming to an end, and it’s unlikely that he would have been renominated if he had scaled back. The constant stimulus that the democratic party desires as such jerome played it safe by saying that inflation was quote transitory and allowing the stimulus to continue until he was successfully renominated by president biden in november last year. Ever since then, jerome has returned to his hawkish ways, and last week he appeared in front of the united states senate for his confirmation hearing, which i will finally unpack. As a quick aside, though, hawkish is a term used to describe a federal reserve board member. Who is concerned about inflation while dovish is someone who prioritizes other issues over inflation important not to get our birds mixed up?
Jerome powell’s senate confirmation hearing started out as most such hearings do with opening statements from the most senior representatives of both political parties. First up was democratic, senator sherrod brown, who blasted jerome for all the insider trading going on at the fed, amongst other things, more about that in the description next up was republican, senator pat toomey, who blasted jerome for all the inflation the fed has caused, but acknowledged That much of it is being caused by supply chain issues. Then jerome took the stage with his own opening statement where he started by swearing that he’s telling the truth. The whole truth and nothing but the truth, and i don’t know why anyone would say otherwise. Jerome then explained that the economy was doing great until the pandemic came along and that the fed is now focused on fighting inflation, because employment is looking strong now.
The key word here is looking because, even though unemployment is low in the united states, millions of people are opting out of the workforce, which is something that even jerome acknowledged during the questioning period. That ensued. The first tatango with jerome was senator brown, who asked whether jerome would commit to addressing issues that are outside of the fed’s mandate. Jerome eloquently responded that the fed will address these issues to the extent that they fall within the fed’s mandate, which is again low unemployment and low inflation. Senator toomey was second in line and he asked jerome point blank if the fed will continue its stimulus or begin cutting interest rates.
After reiterating that many of the inflationary pressures we’re seeing are coming from supply constraints, jerome said there’s not much wiggle room to increase interest rates without crashing the economy, and if that happens, the fed could begin purchasing other assets such as etfs. Now this is pretty crazy and also reminds me of a decrypt article, which analyzed whether the fed would ever buy bitcoin. It now sounds like the fed could theoretically buy a spot, bitcoin etf, if it’s approved, and you can learn more about the likelihood of that by watching my video about it link in the description anyways. The third politician to take a turn with jerome was democratic, senator jack reed, who highlighted the fact that the economic growth the united states has supposedly seen since the 2008 recession hasn’t really been felt by the lower rungs of society. Jerome didn’t really have an answer for that one, but pointed out that he wasn’t chair of the fed until 2018, not my responsibility governor, as you might have guessed.
Most of these asymmetric wealth effects were caused by the dovish policies of jerome’s predecessor, who is of course janet yellen. The fourth politician to follow up was republican, senator richard shelby, who asked jerome why he said inflation was transitory last year, when it clearly wasn’t jerome skillfully replied that the comments were in relation to the supply chain issues causing most of the inflation, which the fed believed Would be transitory. Jerome then reiterated what he said in the fed’s december meeting, namely that it will look to start raising interest rates in march and start actively selling government bonds later in the year. This will have the practical effect of increasing interest rates even more. The fifth politician to get the mic was democrat bob menendez, who asked if inflation will decrease when the pandemic ends now i’m paraphrasing, because what he actually said is too ridiculous to repeat: jerome replied with yes, so, let’s hope for the best.
The sixth senator on the stand was republican politician mike crapo, who asked jerome about the crypto report. The federal reserve had promised to release in the summer of last year, jerome answered by saying the report will be released in the coming weeks. This statement made the crypto news headlines and you can bet i’ll be covering that report when it comes out mike also asked jerome. If inflation will continue. Past 2022 and jerome said that he thinks inflation should slow down by the end of the year and the fed will accelerate its taper if it doesn’t.
Taper is another word for reducing stimulus by the way. The questions then asked by senators testor rounds, warner, tills and especially warren, aren’t really relevant, so i’ll skip over those. If you don’t mind fun fact, senator warren is the only politician who voted against jerome’s federal reserve chair nomination in 2018 she’s also extremely anti-crypto, especially when it comes to the alleged effects of crypto mining on the environment. You can get the facts about that by using the link in the description anyhow republican senator john kennedy set the scene for his questions by telling jerome that he is likely the most powerful person in the world, and he must therefore preserve the independence of the fed From the devilish desires of both political parties, john specified that this is because quote political fads can come and go, but the dollar must not a powerful statement to say the least. John then showed the room, a graph of the united states debt and asked jerome.
How much higher the fed will allow it to go and what will happen if the debt doesn’t stop? Jerome sheepishly replied that the fed will address the debt issue and he honestly couldn’t have been any less convincing democrat senator chris van hollen opened up with his own important question, which was when the fed sees the supply chains. Improving jerome said he doesn’t know and cited the draconian pandemic lockdowns in china as the source of his uncertainty. Republican senator bill hagerty posed another important question and that’s what effect the incoming fed board members nominated by president biden will have on the fed’s monetary policy and, yes, i’m paraphrasing again so as not to piss people off jerome responded by saying that the fed’s board tends To be pretty balanced in its policy opinions, and you can actually see the different opinions its constituents have about inflation, using something called the federal reserve dot plot. The current dot plot suggests that a rise in interest rates is imminent and it’s unlikely that any dovish fed board members will change that, especially since much of the institution’s power lies in the hands of jerome powell.
Himself. Note that this is just my amateur analysis. It seems that democratic, senator catherine masto was the only one who really asked about the fed’s insider trading, and that might be because all the politicians are doing it too. Jerome, replied by saying that the federal reserve has put in a new policy that prevents board members from trading stocks without oversight. Now, knowing the fed, there’s, probably a loophole somewhere and later jerome admits that it has yet to make its insider trading policy public.
So my speculation is justified. Pro crypto republican senator cynthia lumis then charged in with her own line of questioning about why the fed won’t give banking licenses to crypto banks in her state of wyoming. This exchange also made the crypto news, and the tldr is that jerome is scared, that hundreds of other crypto banks will emerge and apply for the same license if the first few get approved, and he should be very afraid. Indeed, senators smith, kramer, ossoff and dane asked more or less the same questions as their predecessors, and the only one that stuck out to me was a question by senator dain, who asked jerome whether blackouts caused by energy shortages would threaten the financial system. The answer is obviously yes, and it reminded me of a concern i have about proof-of-work mining’s energy consumption.
You can learn more about that using the link in the description jerome powell’s confirmation hearing concluded with a few more questions from senator toomey and senator brown, and the only ones worth mentioning were senator toomey’s questions about central bank digital currencies. When asked whether the fed has what it takes to be its own retail bank, jerome answered no, when asked whether a central bank digital currency could coexist with stable coins and cryptocurrencies jerome answered yes now. This brings me to the big question and that’s what all of this means for the crypto market. If you’ve been keeping up with the crypto headlines, then you probably already know the answer. I’Ll start by saying that jerome powell seems to have a very favorable view of cryptocurrency.
He doesn’t think crypto is the threat to financial stability and he even met with coinbase ceo brian armstrong last year to discuss crypto policy. The only concerns about crypto jerome seems to have relate to stable coins, and he, coincidentally, raised his voice on the matter after the meeting with brian, i say, coincidentally, because coinbase is part of the center consortium which governs the usdc stablecoin. As far as i can tell, all jerome wants is to have oversight of stable coins, and i wouldn’t be surprised if he sees them as a convenient way for the fed to keep inflation at bay. Since most of the assets backing stable coins are government debt. Big thing, even though jerome is apparently pro crypto, it doesn’t change the fact that when he says the fed will raise interest rates, the crypto market crashes, along with almost every other asset market, the key word here is says because markets tend to react to the news.
Not the actual event and there’s even some evidence to suggest that the crypto market might actually rally when the fed begins to taper in march. Besides the fact that interest rate hikes take time to affect the economy, the market tends to interpret interest rate hikes as a sign that the economy is strong enough to support them. This has occasionally led to unexpected rallies across the board. Whether this rally will last is a different question, however, and history suggests that it’s only a matter of time before markets crash. At that point, the fed will be forced to provide stimulus, but with no wiggle room to move it’s possible that we will enter a period of hyperinflation and a collapse in confidence in the us dollar.
If i had my tin, foil hat on i’d, tell you that this was the plan all along, because the only way you can convince the population to adopt a central bank digital currency is to completely devalue the existing money in the economy. If you’re wondering what exactly the central banks have planned, you can find out using the link in the description. As for me, my bets are on btc. That’S it for my analysis of jerome powell. If you’ve any thoughts, let me know in the comments down below be sure to smash that like button.
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