The FED again raised its key rate by 0.75%, weighing in return on bitcoin. But how much longer will Jerome Powell last?
Powell wants unemployment
The chairman of the Fed declared at the outset that his “main message hasn’t changed since Jackson Hole”. Jerome Powell had declared there that it was necessary at all costs to contain inflation.
In other words, rates will continue to rise. The goal is to slow the increase in the money supply, growth, consumption and therefore inflation.
It seems “likely that a prolonged period of growth below the long-term trend will be needed to reduce inflation”did he declare. “There is no painless solution to reducing inflation. We need an increase in unemployment. »
It is thus surprising to hear J. Powell mutter “not knowing what the probability of a recession was”.
Admittedly, it is true that GDP may well not decline. But only because the price of everything will have gone up. In other words, the real GDP, that is to say the quantity of things actually consumed, will have fallen. Said differently again, it is a growth of general impoverishment…
How high will rates go up?
As this conference is the last of the quarter, new economic projections have been published.
It shows in particular that all the governors see the rates go up even higher than what they expected in the previous quarter. Here is the famous “dot plot” of the Fed. Each point represents the forecast of one of its 19 governors:
Jérôme Powell pointed out that these projections do not necessarily represent “a plan or commitment”.
However, it should be noted that no governor plans to raise the key rate above 5%. Moreover, it is expected that this rate will begin to fall from 2024.
And for good reason, according to the latest data Congressional Budget Office (CBO), the US government will spend $400 billion on interest payments in 2022. That already equates to more than “8% of all federal revenue collected. That is 3,000 dollars per year and per household. »
“ If borrowing rates continue to rise, the result will be more debt and more spending to service that debt.”can we read in this relentless report.
The CBO anticipates even a threefold increase in the amount of interest paid on the national debt within a decade. They will go from nearly 400 billion dollars for 2022 to 1200 billion per year in 2032. So much money that will have to be borrowed, which will aggravate the debt.
“To reduce the size of the debt and, therefore, the interest payments on that debt, policymakers should reduce spending […] »is it written.
The CBO, which does not believe in it for a single second and rather anticipates a deficit budget of the order of 16,000 billion dollars for the whole of the decade to come.
As many billions as the banks will have to print… You can’t tap a government ponzi…
And the Fed’s balance sheet?
In view of this huge budget deficit in prospect, it is doubtful that the FED will maintain high rates for long. It is also difficult to anticipate a drastic reduction in its balance sheet since this amounts to reducing the quantity of money held by private banks.
And yet, the rate of monthly balance sheet reduction (nearly $9 trillion) will double from this month. 95 billion debt securities will be sold each month.
The whole question is to know from when this reduction in the balance sheet will derail the rates. The last time, the FED threw in the towel after a drop of only 600 billion…
We wrote in our Tuesday recurring Bitcoin analysis:
Wright therefore expects the Fed’s balance sheet to decline to only about $7.5 trillion by the end of 2023, before starting to grow again. ‘My hypothesis is that QE money [Quantitative Easing] will never be re-vacuumed by the Fed’, Wright said. »
We bet that the recession and the war will very quickly force the FED and the ECB to backtrack in a handful of months. Nothing can then prevent Bitcoin from resuming its forward march.
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