High Interest Rates Are Not Likely To Come Down Soon, FOMC Minutes Indicate
The current environment of high interest rates probably won’t change soon, as the latest Federal Open Market Committee meeting minutes show that many central bank officials are determined to bring red-hot inflation under control using tight monetary policy.
This situation could easily prove bearish for risk assets such as cryptocurrencies and stocks if compelling yields motivate investors to seek interest-bearing assets like U.S. Treasury notes.
The Fed has hiked the target range for the benchmark federal funds rate five times since roughly mid-March, increasing it by 300 basis points.
Over roughly the last seven months, the central bank has opted for three 75-bp increases.[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The Fed’s efforts to bring inflation under control, using both rate increases and asset sales, have helped the yields on many fixed instruments reach multi-year highs in the last month.
‘More Restrictive Policy’ Needed, Say Minutes
The upward pressure on interest rates is unlikely to stop soon, as the minutes of the latest FOMC meeting, released this afternoon, show plans for further tightening.
“Participants judged that the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability,” the transcript stated.
Some officials emphasized that the more severe monetary conditions may need to stay in place for a while until these is adequate reason to believe that sky-high price increases are coming under control.
“Many participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time until there was compelling evidence that inflation was on course to return to the 2 percent objective,” the minutes stated.
Tight Policies Should Be Used ‘As Long As Necessary’
The minutes further highlighted the more hawkish views of certain meeting attendees who expressed their belief that the central bank should use “maintain a restrictive stance for as long as necessary.”
Further, some of these individuals stressed the potential drawbacks of loosening monetary policy too early, noting that “historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation.”
In addition, a large number of participants noted that it would be better to overcompensate to control high inflation than to risk doing too little.
Finally, the meeting attendees acknowledged as monetary policy grew tighter, they would need to account for the possibility that such restrictive actions could have a larger-than-anticipated impact on societal demand, causing it to contract more than necessary to bring inflation back to the desired rate of 2%.
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.
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