The brewing war in the Levant has probably made the Fed cautious. Is the petrodollar on hold? What about bitcoin?
Fed Still Worried About Inflation
The US central bank has kept its key interest rate unchanged. It has now been at its highest level for a year (5.50%).
The move was largely telegraphed by FOMC governors, who stuck to the verbiage they've used since January to oppose rate hikes.
“The Committee does not believe that it is appropriate to cut rates until there is greater confidence that inflation is moving sustainably towards the 2% target.”we can read in the communicated.
However, Jerome Powell has admitted out loud that rates could fall from the start of the school year. A first reduction is potentially possible in September:
In summary we could have a rate cut in September if inflation falls further. “significant slowdown” in the labor market could also prompt the Fed to cut rates. But if inflation persists and the economy remains ” solid “the rates will remain as is.
Annual inflation is currently 3% in the United States. You have to go back to February 2021 to find a figure below 2%.
In total, inflation has been 25% since January 2020. In other words, Americans' purchasing power has collapsed by 20% in less than four years!
“The job is not done with regard to inflation, but we can afford to start easing policy rates”said J. Powell.
Eyes on the price of a barrel
The Fed is cautious. It knows that Israel's repeated provocations (rape of Palestinian prisoners, assassination of the Hamas leader in Tehran, massacres of children, etc.) could well trigger a war.
Former Russian President Dmitry Medvedev has also given the green light to this scenario also desired by Washington:
“The noose is tightening in the Middle East. I am saddened by all these innocent lives held hostage by a repugnant state: the United States. It is clear to everyone that war is the only way to achieve a tenuous peace in the region.”he said on X.
Threats are also becoming increasingly insistent from the region's military heavyweights. The Iranian president has warned of “heavy consequences” if Israel attacks Lebanon. The Turkish President Erdogan threatened for his part toāenter Israel, as we entered Karabakh and Libya.ā
Knowing that the price of a barrel could soar if the region goes up in flames and that global inflation is directly dependent on the price of oil. Indeed, 95% of global transport runs on gasolineā¦
Christyan Malek, head of EMEA energy equity research at JPMorgan, warned $150 oil if OPEC cuts its oil production in retaliation.
Inflation would then start to rise again, forcing central banks to raise their rates. Here is a graph showing the very strong correlation between the price of oil and inflation:
What happens if the price of oil rebounds to $100?
Did the Fed leave itself room for error?
Embargo or end of the petrodollar and emergence of bitcoin?
It is not impossible that the Arab nations, instead of turning off the tap, would simply stop accepting the petrodollar. In other words, we would see a decline in the dollar rather than a rise in the price of oil.
Let us not forget that Iran, Saudi Arabia, Egypt and the United Arab Emirates recently joined BRICS, but this organization is only open to countries that intend to purge the dollar from their trade.
Russia no longer holds any Treasury bonds in reserve, and China stopped accumulating them in 2013. China's Treasury bond reserves have since fallen by 41%. The Saudi kingdom has reduced its Treasury bond reserves by 25% since 2020.
In addition, about forty countries want to join the BRICS. Such a crowd would allow the launch of a new international payment system competing with the SWIFT network. However, this is not an easy taskā¦
Faced with the difficulties of this Herculean projectbitcoin has the advantage of existing with already impressive daily volumes. As such, the recent legalization of international payments in bitcoins by the Russian Parliament is not insignificant.
The United States has understood that bitcoin can replace American debt as an international reserve currency. That is why President Trump has resigned himself to embracing bitcoin as a reserve currency. Accumulating it at a low price before others would offer the dollar some breathing room.
We are on the cusp of a reset of the international monetary system. Many nations are reluctant to finance the American debt with their reserves. Despite the empire's warlike gestures, it will soon have to absorb its abysmal trade deficit and reduce its standard of living.
The international political context will only calm down when all nations trade on equal terms, willingly or by force. Don't miss our article: “Fed bans Iraq from using its dollars and yuan.”
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