A member of the US Federal Reserve Board said Wednesday that historically high interest rates in the US could “exacerbate” stress in an already volatile banking system.
The governor also hinted that the central bank may decide not to raise the benchmark interest rate at the next Federal Open Market Committee (FOMC) meeting, which could affect the Bitcoin price.
Rising interest rates and growing debt
Fed Governor Philip N. Jefferson said Speaking at the 22nd Annual International Conference on Financial Sector Policy Issues in Washington, DC, he discussed the economic outlook for the US financial system.
While the governor argued that the banking system was “stabilized” after multiple runs and foreclosures in March, he acknowledged the risks associated with rising short-term interest rates, which he said were set to last “a little over a year.” “It’s 5 percentage points higher than before,” he said. ”
As Jefferson explained, the effects of monetary policy have a “long and fluctuating lag” that cannot be fully explained in just one year. He expects growth to slow over the rest of the year amid “increased uncertainty”, declining household savings and tight fiscal conditions.
Although he does not foresee a recession, he argued that the combination of low profits and high interest rates “could test the ability of companies to service their debt.” ”
“Furthermore … higher interest rates could exacerbate the stress on banking institutions, particularly those with high exposure to long-term assets and relatively high ratios of uninsured deposits to total deposits,” he continued.
Will the Fed ‘skip’ rate hikes?
When Silicon Valley Bank (SVB) experienced a run in March, it came after the company disclosed realized losses of $1.8 billion on long-term bonds.
Insurance coverage ultimately did not matter to the SVB as the Federal Reserve, Treasury and FDIC agreed at the time to fully bail out all depositors as a “bailout”.Systemic risk exception”
critics of the move I got it How central bank bailouts reversed much of the progress made in attempts to extract liquidity from the economy could again contribute to inflation in assets like Bitcoin.
He raised the idea that the Fed could “maintain” the policy rate at “an upcoming meeting,” but that this should not be interpreted as the Fed reaching “the peak rate for this cycle.” .
“Certainly, skipping a rate hike at its next meeting would allow the Commission to see more data before making a decision on the extent of additional policy enhancements,” he concluded.
Rising interest rates will keep bitcoin and stocks down throughout 2022, and bitcoin could become bullish as peak interest rates approach.That said, analysis suggest Bitcoin may be less affected by rate hikes than last year.
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