Federal Reserve Chair Jerome Powell has dismissed Bitcoin as a competitor to the U.S. dollar during a New York Times DealBook Summit, calling it “kind of like the digital gold” instead.
Powell said Bitcoin functions as something more akin to a speculative digital asset than currency and added, “It’s like gold—only it’s virtual and digital. It isn’t being used as a form of payment or store of value.” It’s extremely volatile and doesn’t threaten the dollar.” Considering Bitcoin is an alternative investment, similar to gold that hedges or bubbles.
The Federal Reserve View on Cryptocurrencies
When appraising the broader cryptocurrency space, Powell stressed that the Fed’s role is observational rather than regulatory. Though the Fed watches how digital assets interact with traditional banking systems, it doesn’t directly regulate cryptocurrencies.
Powell, prohibited as the Federal Reserve chief from owning digital currencies in order to avoid conflicts of interest, clarified when asked about his own investments in such purchases.
An Optimistic Economic Outlook
Powell’s comments also reflected his prowess in touting the current state of the U.S. economy. He characterized the economic landscape as “in great shape right now,” with growth outpacing expectations and a strong labour market. But Powell admitted inflation was still a little higher than they would like, indicating continued watchfulness and adjustments are in order.
“The healthy labour market and diminished risk in the economy give us room to be patient as we assess how best to balance these factors with a return to 2 percent inflation,” Powell said, suggesting the central bank was prepared to pivot if circumstances change.
December’s Interest Rate Decision
All eyes are on the Federal Reserve and what it will do next as markets increasingly anticipate another 25 basis point interest rate cut at the FOMC meeting this December 18.
So stands a 75% chance of this reduction, according to the CME FedWatch Tool, which would place the benchmark rate at a range of 4.25%-4.5%, compared to the current 4.5%-4.75%. The expected cut comes after 75 basis points of reductions that have been put in place already at the Fed’s September and November meetings.
Powell’s dovish tone indicates that although further rate cuts are at least partly priced in, the Federal Reserve will strive to strike a balance between economic growth and inflation.
The implications for investors and the economy
By framing Bitcoin as a digital analogue to gold instead of a competitor to fiat currencies, Powell sends investors an unambiguous signal about the usefulness of the asset. Such characterization may promote the use of Bitcoin as an instrument of diversification instead of a distinct competitor to nebulous currency.
On the monetary policy side, Powell’s statements show how cautious the Federal Reserve has been in easing interest rates. A solid job market and tame inflation risks give some leeway, but the Fed seems determined to avoid moves taken too soon that could upset the economy.
Closing Arguments Before a Key Vote
Those remarks were Powell’s last public statements before the FOMC’s December meeting, and they will go a long way in showing what path the Fed has moving forward. As Bitcoin buzzed in the speculative arena, interest rates were laden with potential economic impacts as the Federal Reserve kept its focus on stabilizing economies and battling inflation.
Powell’s cautious yet optimistic tone, as markets brace for a much-anticipated interest rate decision coming up soon, suggests a measured approach that focuses on long-term stability rather than short-term gains.
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