The U.S. Federal Reserve is expected to ramp up inflation by keeping interest rates low. As the U.S. dollar falls sharply and gold’s price soars, institutional investors are moving their money into alternative investments, including bitcoin.
Fed Policies Drive Demand for Bitcoin
The Federal Reserve is completing a year-long policy review and “is expected to make a major commitment to ramping up inflation soon,” CNBC reported last week. Investors have been making heavy bets accordingly as evidenced by record-high gold prices, the falling U.S. dollar, and increased demand for Treasury Inflation-Protected Securities (TIPS).
The Fed is expected not to raise interest rates until inflation and unemployment targets are hit. Supporting the Fed’s policies, President of the Federal Reserve Bank of Chicago Charles L. Evans said he would like to keep rates where they are until inflation gets up around 2.5%, the publication conveyed. However, it could take years for the Fed to hit its targets since inflation is currently closer to 1% and the unemployment rate is higher than it has been since the Great Depression.
“We believe that the Fed publicly would welcome inflation in a range of 2% up to 4% as a long-overdue offset to inflation running below 2% for so long in the past,” explained Ed Yardeni, head of Yardeni Research. He calls this approach “wildly bullish” for alternative asset classes.
Some institutional investors are shifting their strategies to reflect the new environment. Citing Federal Reserve Chairman Jerome Powell saying “we’re not thinking about raising interest rates and we’re not even thinking about thinking about raising interest rates,” the CEO of Nasdaq-listed Microstrategy Inc. (ticker symbol MSTR), Michael Saylor, said during the company’s Q2 2020 earnings call:
If you have large dollar values and you’re hoping for any kind of return on them, that’s faded. Gold, silver, and bitcoin are showing strength.
“The dollar, the DXY index…