The Chairman of the Federal Reserve, Jerome Powell, gave a speech on Tuesday, March 7, in which he discussed recent developments in the cryptocurrency industry as well as the present macroeconomic climate.
Amid the recent upheaval, the Chairman of the Federal Reserve attempted to find a middle ground by claiming that the central bank is keeping a careful eye on the cryptocurrency market. On the other hand, he stressed that they would ensure innovation was not stifled.
Powell stated (1) that the Federal Reserve is “very engaged” in monitoring all developments pertaining to cryptocurrencies during his appearance with lawmakers on Capitol Hill.
In addition, he stated that all regulated financial institutions must exercise “extreme care” in how they interact with the cryptocurrency industry.
The Chairman of the Fed also stated:
“Much like everyone else, we’ve been keeping an eye on what’s been going on in the cryptocurrency area, and what we’ve seen is quite a lot of upheaval: we’ve seen fraud, we’ve seen a lack of openness, we’ve seen run risk, and we’ve seen lots of other similar things.
What we have been doing is helping ensure that the regulated financial firms that we supervise and control are careful in the ways that they engage with the entirety of the cryptocurrency environment.
In 2022, the cryptocurrency industry was rocked by some of its most high-profile scandals and bankruptcies.
The failure of the cryptocurrency exchange known as FTX in November of 2022 was the event that truly set the regulators on their toes.
The collapse of the FTX exchange caused a contagion that extended throughout the whole cryptocurrency industry, impacting the enterprises directly linked with the exchange and those outside of it.
The Chairman of the Federal Reserve Discusses Inflation and Rate Hikes
Inflation was another topic that was discussed by Jerome Powell, as it is currently the most important macro indicator.
Powell issued a warning, indicating that interest rates are likely to rise higher than the central bank officials had anticipated.
He commented about the Fed’s determination to reduce inflation under the desired 2%, and as a result, he warned about the possibility of a more stringent monetary policy in the future. Powell stated the following in his remarks that he delivered from Capitol Hill:
The most recent economic figures have been released and have been stronger than projected. This indicates that the ultimate interest rate will likely be higher than was previously anticipated.
If the aggregate of the data were to suggest that more rapid monetary policy normalization is required, we would be willing to quicken the speed at which interest rates are increased.
This indicates that the Federal Reserve may increase interest rates to significantly greater levels than was originally predicted. Also, as a result of this, the probability of future rate rises of fifty basis points rather than the previous rate increases of one-quarter of one percentage point is increased.
When the Fed officials met in December 2022, they determined that the terminal rate would be 5.1%. Now, this could shift even more to the 5.5%-5.75% level in the future. Powell said that the present developments in inflation suggest that their mission to fight inflation isn’t over yet and that they will continue to monitor inflation trends.
He continued by saying, “We have covered a great deal of ground, and the full impacts of our tightening so far have yet to be felt,” which was a statement that gave the impression that the road ahead would be “bumpy.” Despite this, there is still more work to be done.