Even the Fed is no longer sure it can avoid a recession

This afternoon, monetary policy nerds like me watched as Silver Fox itself explained the Fed’s thinking behind its decision to raise interest rates by three-quarters of a percentage point – the rate measure the most aggressive the bank has taken since 1994.

Let me summarize the comments of Fed Chairman Jay Powell: Inflation is bad. We are doing our best. Nobody really knows what’s going on.

Here’s the deal: Friday’s dismal inflation report all but guaranteed that the Fed would have to do more than the half-point hike it previously announced. Prices jumped 8.6%, up from the previous month, which means they are headed in the wrong direction. This report was so bad that some analysts even expected Powell and his jolly economists to go even further with rate hikes – why stop at 0.75, just go all the way and push them higher? a full point, Jay?

The answer is because he didn’t want to scare off investors who just fell straight into a bear market.

And this so-called 75 basis point move seems to have punished Wall Street. It showed that the Fed was serious but not panicked. Markets rallied in afternoon trading.

Why are higher interest rates important?

It is one of the Fed’s main tools for controlling prices. By raising rates from near zero at the start of the year, the central bank is making it more expensive for businesses and individuals to borrow money. Which obviously sucks if you’re a business owner looking to expand or looking to buy a house, or take out any type of loan for any short term reason.

Life is already so expensive, and now you’re gonna raise the interest rate on my credit cards, Jay? What, am I supposed to stop shopping now?

And the answer is yes, almost. Don’t stop shopping altogether, dear citizen – your voracious appetite for consumer goods is the engine that powers the world’s largest economy and we’re all screwed if you stop those trips to Target where you go for JUST A QUICK THING and end up with a new lamp, a propane tank for your camping trip, three swimsuits, new stationery, and a blender.

My colleague Nicole Goodkind is reporting from DC today, in the room where it happened…

NUMBER OF DAYS: 2.9 MILLION

Ford is recalling 2.9 million cars over an issue that could cause them to roll when parked. Essentially, the driver parks their gear, but some vehicles have a faulty part that prevents them from parking. Safety regulators received four reports of injuries and six reports of property damage potentially linked to the issue.

CRYPTO WINTER

The “biggest fool” theory is a popular concept in finance, not to mention the darker arts of Ponzi schemes. The idea is that you can still make money trading worthless or overvalued assets as long as there are other (dumber) people willing to outbid them.

Imagine an asset consisting essentially of a few lines of code with no apparent intrinsic value and no demonstrable application in the real world. But infuse this asset with boundless hype from a handful of early adopters who stand to gain a lot if they can convince more people to buy said asset. Add a few buzzwords, tribalism, FOMO, and a handful of celebrity endorsements and you’re in business.

Here’s the thing: in case it’s not clear, we’re talking about bitcoin, which is absolutely hammered this week. And then, just to continue, Bill Gates denigrated cryptos and their sister products NFT as “100% based on a dumber theory”. (Translation: it’s a scam).
Despite falling values ​​and turmoil on major trading platforms, crypto devotees are shrugging their shoulders, reports my colleague Nicole Goodkind. This crash is part of life in the bitcoin industry, they say – the lows of a bear market are lower, but the highs are also higher.

ICYMI, here is a summary of the last few days:

  • Bitcoin, the world’s most valuable cryptocurrency, fell a hair’s breadth above the psychologically significant $20,000 level on Wednesday. That’s about 70% below its high of nearly $69,000, hit just seven months ago.
  • Ether, the second-largest crypto, has lost about a third of its value since Friday, and is 75% off its peak.
  • Coinbase, a leading crypto exchange, is laying off 18% of its staff.
  • Binance, another exchange, had to suspend withdrawals for a few hours on Monday, saying some transactions were “stuck”. On the same day, the Celsius network also suspended withdrawals, citing “extreme market conditions“.

But investors who have been in the crypto game for a few years don’t seem too worried (at least not yet) because they’ve seen this sort of thing before.

Two previous extended downturns have seen bitcoin lose more than 80% of its value, but the coin has rebounded — and more. During the 2017-2018 crypto bear market, bitcoin fell 83% from around $19,400 to $3,200. Three years later, in November 2021, it had soared above $68,000.

At the end of the line

Look, crypto isn’t the only asset having a bad week/month/year. Virtually all stocks are affected by the monetary policy tightening, which has kept investors away from betting on riskier assets such as tech stocks and crypto.

But crypto has unique issues. It’s young — as in, born in 2009; as in, one of the youngest members of Gen Z; as in, he’s not even enrolled in college yet, and there’s still a decade to go before he can legally drink. The market is almost completely unregulated, and it’s backed by hordes of celebrities and inexperienced investors who, if I were to bet, wouldn’t know a blockchain from a butter churn with a gun to its head.

That’s why the likes of Bill Gates, Warren Buffett, Jamie Dimon, New York Attorney General Letitia James, and a small but growing number of tech leaders are speaking out and organizing to warn the public and lawmakers about the risks of investing in crypto.

These skeptics are becoming reservoirs of cryptos. As Buffett famously said, “It’s not until the tide goes out that you learn who’s been swimming naked.”

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About Joel Simmons

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