How Bitcoiners Should Watch the US Federal Reserve Meeting on Wednesday

It’s the debate the Federal Reserve isn’t ready to have yet: How to keep inflation from spiraling out of control once the economy opens back up.

Considering the devastating toll from the coronavirus and the trillions of dollars of stimulus pumped into the financial system over the past year, top economists say the looming transition could present one of the more challenging episodes in the U.S. central bank’s 108-year history – while providing a crucial test of bitcoin’s use as a possible inflation hedge.

Economists are watching Fed Chair Jerome Powell’s remarks on Wednesday when he’ll sum up the January meeting of the Federal Open Market Committee (FOMC). Powell’s comments will primarily address the short-term economic outlook but may contain hints for how the central bank plans to approach the medium to long term.

The short term

In recent weeks regional Fed presidents have raised the question on whether the Fed will dial back or continue with a quantitative easing program of purchasing $80 billion per month of Treasurys and $40 billion per month of mortgage-backed securities. This program will likely remain unchanged until consumers start spending again in a COVID-free world, economists say.

“If you look at breakevens or any kind of market indicator or even consensus forecasts from economists, none of them show above 2% inflation during the next five years,” said David Beckworth, a former international economist at the U.S. Department of the Treasury. “As the vaccine rolls out, all of this pent-up money savings is going to be spent. It’s going to be a roaring hot economy. Will the Fed nip it in the bud?”

No one expects the Federal Reserve to act in terms of rates or asset purchases this week, said former Federal Reserve economist Claudia Sahm, but investors will be looking for an updated message from Powell.

Sahm expects Powell to reiterate what Vice Chair Richard Clarida said earlier in January about the Fed likely not raising rates…

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