During today’s Federal Open Market Committee (FOMC) press conference, Chair of the Federal Reserve Jerome Powell maintained that the Fed will keep its fund rate unchanged at 0.00% to 0.25%.
Powell also confirmed that the Fed will maintain the current pace of balance sheet expansion with the continuation of buying $80 billion of U.S. Treasury bonds and $40 billion of mortgage-backed securities per month. The Fed’s commitment to dovish monetary policy was expected, and the ramifications of continued easy money is extremely bullish for bitcoin, as well as for other asset classes.
During the live stream, the U.S. Dollar Currency Index (DXY) hit session lows, as the promise of continued easy money sent a clear message to investors.
Powell was repeatedly asked throughout the meeting about worries of inflation, and the Fed’s response to rising prices across the economic system. He responded to these worries by calling inflationary pressures “transitory,” and noting that they would not necessitate interest rate rises in 2021.
As a result of keeping rates at the zero lower bound, with rising inflation, real interest rates will continue to fall further negative, which is extremely bullish for all asset prices. With Powell’s comments, the secular trend of continued lower real rates is expected. With real yields across the Treasury curve negative, so is the real cost of capital, which further incentivizes the adoption of Bitcoin and the flight from bonds, which now offer very little upside appreciation.
The Fed remains trapped, with the options for the central bank being somewhat binary:
Raise rates: Asset prices get crushed, debt burdens spike in real terms and a deflationary spiral hits the economy, as the implications of an economic system collectively spending more than it has earned for decades is finally felt.
Keep rates at zero: Let inflation “run hot” as real yields continue to go further negative, and the investor class celebrates as all assets skyrocket, bitcoin being the biggest beneficiary, as it is the world’s only asset that is 100% monetary premium, 0% anything else.